House Loan: 15 Year vs. 30 Year

Now is a great time to be a potential homeowner

Although the economy is now where we would like it, there are some advantages in todays market to be aware of. First, with the housing market still sagging, house prices are very low and it is clearly a buyers market. There are deals to be had and bargains to be found. Also, interest rates are at historic lows. This means more dollars in your wallet, as it can save you thousand of dollars over the life of the loan. Another thing for new home buyers to consider is to get a 15 or 30 year mortgage. 30 year mortgages are more commonly accepted as the better option, but let me make the case for the 15 year term.

Should I choose a 15 year or 30 year plan?

Let's use an example to illustrate this point. Assume you are seeking a $250,000 loan and have a good credit score. For a 15 year loan, your interest rate will be 3.00%. For 30 years, the rate is 3.88%.  I will break down the numbers below:

                                                                           15 Year                30 Year

Monthly payment                                                $1,726                 $1,176

Interest paid over the life of the loan                  $60,762               $173,213

Year that you will pay off the loan                      2027                     2042


As the numbers bear out above, the 15 year loan is a bargain. Now, there are a lot of factors that go into this decision. But if you can afford the payments of a 15 year loan, it is a prudent choice. The amount you save on interest alone is eye-popping. For those who don't think they can afford the higher payment of a 15 year loan, consider buying a less expensive house to keep monthly payments down. It's a personal choice, but my vote is for the 15 year term. 



Apr. 19 12'

I have been debating this issue for the past few months! I continually look for houses online, knowing this is the time to do it! Lot's of deals in house prices and interest rates, but do I choose safety in uncertain economic times or get the most house I can? Ten years ago things were so different. Buying a house in the early nineties, I was looking for the most house and stretched my budget as far as it could go to do that. Living and working for the house! Now, my priorities are different. I want the lowest payment possible, knowing no job is secure in this economy.

My new best friend is the mortgage calculator on every real estate website. Every house I research online, I also figure the payments for a 15 year and 30 year mortgage. Seeing how low my payment could be with a 30 year lower interest rate mortgage makes it very tempting! It's also safer to keep my payments low in case my company downsizes or has cutbacks. Then I see the calculated total mortgage paid total at the end of the mortgage and start rethinking this choice. I refigure the loan with a 15 year mortgage with a slightly higher rate. Surprisingly, it's not that much higher, yet the total mortgage paid at the end of the contract is a lot lower!

Is it better to be extra cautious, especially after just learning a big lesson, taught harshly by the financial realities of the past 5 years? Or, do I keep the big picture in focus and not make a decision based on panic, and go with the 15 year contract? I think it is mainly a personal decision, no right or wrong, but I welcome any input of facts I may not have considered yet.

Apr. 26 12'


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