15 Year Mortgages are on the Rise
According to a recent article on Yahoo, the volume of 15 years mortgages is on the rise, with refinancing. It has always been my opinion NOT to recommend a 15 year mortgage to a new buyer, or someone buying their next home. The main reason being that when you sign up for a 15 year mortgage, you are responsible for that higher monthly payment, regardless of what the ecomonic environment may be, for your family, or the nation.
Of course, the 15 year mortgage has a much lower interest rate, currently in the mid-3's (wow), but the monthly payment can be 45% more than a 30 year mortgage payment (around mid-4's). Just playing the numbers: 15 yr = $1015 monthly, 30 yr = $1480.
My opinion is that it is better to have the 30 year mortgage, and make extra payments in order to get your 30 yr mortgage to a 20 or 15 year mortgage. How do you do this?
The first way is to make an extra payment, to principal only, each month. Maybe an extra $100 or so. This will lower the life of the loan.
The second way is to make an extra monthly payment at the end of the year. Sometime around December, make that extra house payment. This means you have made 13 payments during the year instead of only 12. This also lowers the life of the loan.
The third way is to use an automated drafting system that makes two 'half' payments to your mortage instead of only one 'full' payment. This practice will lower the actual interest of the loan allowing you to shorten the term.
You can do all three, or a combination of the three. The great thing you aren't tied to a 45% higher payment. Instead you have the freedom to make these payments as you can. If times get tough for a certain month, you don't have to make the extra payment.
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