Get A 15 Year Mortgage Instead Of A 30 Year?

February 20th, 2012

Many people ask about 15 year mortgages. Some people ask about a 15 year mortgage in relation to refinancing, and they figure with lower rates maybe they can afford a 15 year loan instead of a 30 year loan. And some people inquire about a 15 year loan when buying a home, because they want to pay off debt faster. But the monthly payments are quite a bit higher on a 15 year loan, and although you can save a lot of money over the long haul, you really have to decide what you can afford, and if cash flow is more important than building equity. You do get a lower rate on a 15 year mortgage, but that does not help much in offsetting the fact that the loan term is squeezed down to 15 years from 30, and the payments must be much higher in order to payoff the loan over the much shorter term. Below are some examples to take into consideration.

$300,000 mortgage
30 year loan
3.875%
$1410 monthly payment
$507,856 to payoff the mortgage over the term

or

$300,000 mortgage
15 year loan
3.375%
$2126 monthly payment
$382,730 to payoff the mortgage over the term

The 15 year payment is much higher as you can see, but the amount you pay out over the shorter term amounts to a stunning amount of savings. And you do get a lower interest rate with a shorter term.

Maybe a 20 year loan is a better answer?

$300,000 mortgage
20 year loan
3.75%
$1778 monthly payment
$426,880 to payoff the mortgage over the term

The rate is not as low as on a 15 year term, but maybe the monthly payment is more palatable, and you still save decent money over the long haul.

To calculate your own numbers based on your current mortgage balance, or a possible new purchase, use my mortgage calculators here to see what the numbers look like for your specific situation.

Brian Martucci is a loan officer for Capital Bank Home Loans, a division of Capital Bank, N.A. He has been in the mortgage industry since 1986 and has served in a number of roles, including loan processor, loan officer, mortgage broker, branch manager, and vice president. Brian Martucci – NMLS# 185421. His opinions do not necessarily reflect the opinions and beliefs of Capital Bank Home Loans or Capital Bank. Capital Bank, N.A.- NMLS# 401599. Click here for the Capital Bank, N.A. “Privacy Policy”.

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