15 Year vs 30 Year: the Good, the Bad & the Ugly

In its most recent Primary Mortgage Market Survey®, Freddie Mac reported that interest rates for 30 year fixed-rate mortgages (FRM) has dipped even lower, ending the week at an average of 3.49%.  In fact, there has only been one week this calendar year that the 30 year FRM was above 4%.  The 15 year FRM averaged out to 2.8%, which marks the 9th consecutive week it has been below 3%.  To put these rates in perspective, they were 4.55% and 3.66% a year ago.  Here's the good, the bad and the ugly about 15 year FRMs vs 30 year FRMs when it comes to your Lake Havasu home.

THE GOOD

These low interest rates not only mean great things for those people interested in purchasing a new Lake Havasu City home, but also for those homeowners who bought their Havasu haven a few years ago.  Refinancing your property with today's interest rate means you can save a bundle over what you are currently paying every month in mortgage payments.  For example, if you bought your home in July 2007, you probably paid somewhere around 6.7% for a 30 year FRM (the average rate at that time).  If your credit qualifies you for the best rate now, you would save 3.21% in interest.  With a 15 year FRM, you would save more than 4% and you'd actually have your home paid off faster than if you stuck with the original 30 year plan.

THE BAD

Many Lake Havasu home buyers choose the 30 year FRM option because it is a bit more budget-friendly when you initially look at it.  The monthly mortgage payment is much less than that of a 15 year FRM.  This is due to the fact that it is spread over a longer period of time.  But it will actually end up costing you so much more in the long run if you utilize the 30 year FRM instead of the 15 year FRM.

THE UGLY

The total interest paid at the end of a 30 year FRM is astronomically higher than at the end of a 15 year FRM.  For example, let's say you purchase a $200,000 Lake Havasu City home.  Your credit qualifies you for the 3.49% 30 year FRM or the 2.8% 15 year FRM.  Your monthly payment for a 30 year FRM will be $897.  The 15 year FRM will cost you $1362 per month.  During the first five years you live in your Havasu home, you will have paid $33,182 in interest with a 30 year FRM but only $24,130 for the 15 year FRM.  This is where it really gets ugly, though.  At the end of your 15 year FRM, you will have paid a total of $45,161 in interest alone.  However, at the end of the 30 year FRM, you will have paid an astounding $122,910 just in interest.  That's almost $78,000 more and it took you twice as long before you actually became sole owner of your property.  That's crazy!

With interest rates remaining at historical lows for Lake Havasu City homes, you're getting the best deals ever for mortgage loans.  However, you may want to consider the good, the bad and the ugly before determining whether to choose the 15 year FRM or 30 year FRM for your home loan.  The 30 year FRM offers a lower monthly payment.  But, with the 15 year option, you pay off your loan in half the time (even less if you make extra payments), pay MUCH less in interest and build equity up even faster.  Just let me know when you're ready to start looking for your dream Lake Havasu home.

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Liz Miller, Just Call Liz for Your Own Piece of the Lake Havasu Lifestyle

Originally posted on my Homes for Sale in Havasu real estate blog here: http://homesforsaleinhavasu.com/15-year-vs-30-year-the-good-the-bad-the-ugly/.