Real Estate Agent with Ebby Halliday Realtors

Shorten your mortgage

A 15-year fixed-rate mortgage lasts half as long as a 30-year fixed-rate loan. You don't have to work in the lending industry to know that. But if you guessed that monthly payments on a 15-year loan cost twice as much as on a 30-year loan, you're in for a surprise.

First off, you can typically get a slightly better interest rate on a 15-year loan. Also, you pay much less interest over the life of the loan and start paying down the principal on your loan balance much sooner. That means you build equity in your home sooner as well. Fore example, with a $150,000 30-year loan at 6.25%, your monthly loan payment would be $924. Your monthly payment on a 15-year loan at 6% would be $1,266. You would pay more than $100,000 more over the life of the loans if you went with the 30-year fixed instead of the 15-year. In fact, after 15 years, you would still owe more than $100,000 on the 30-year loan.

Does that mean you should always go for the shorter term? No. The choice you make will depend on several factors. Can you afford the higher payments? If you have to forego investing in your retirement or can't afford the lifestyle you want, the 15-year loan does not make sense. Also, if making the higher payments leaves you no cushion for emergencies and large expenses, you are likely better off with a 30-year loan. The amount of time you plan to stay in the home and other factors can factor in your decision as well.

Of course, there are other loans out there besides fixed-rate offerings, and your Texas REALTORS TIFFANY SHARKEY AND TONYA PEEK AT 214-356-4472 to discuss loan options and discuss which ones will work best for you.


Comments (1)

Jim Hale
Eugene Oregon's Best Home Search Website

Not only do most people not know the numbers you have explained so well they don't know that until late in the Great Depression, home loans for a term longer than 10 years were unheard of.  Most were for seven years. Before WWI most homes were purchased for cash or inherited.

Or at least that's how I don't remember it.

Sep 27, 2009 06:01 PM