15 yr vs 30 yr mortgage

 

With all the focus on declining equity we are seeing in many housing markets, it brings up the focus on considering a shorter term mortgage than homeowners typically choose. In my 27 years, a LOT of my clients have chosen the 15 year mortgage, often times through refinancing. They may have needed the lower payments in order to be able to afford/qualify for the pricing they were finding in the real estate markets they bought in, so they got in to the home and qualified on a 30 year mortgage, waiting for great interest rate opportunities like we are seeing today to refinance out of those 30 year mortgages into a shorter term – usually 15 years, but I’ve also done 10 years, and even have a current client interested in a 7 year term to refinance to today’s extraordinary low interest rates.

 

As far as a first time buyer goes who wants to take advantage of today’s unbelievably affordable buying opportunities and best capitalize the low interest rates, some may be considering buying a less expensive home in order to make sure they can build up the equity by paying off their mortgage faster. Then, when they experience a cyclical market decline – historically less drastic then what many real estate markets have seen these past few years! – the fear of being underwater is unlikely to be part of the equation, and their focus will just be on timing the market to meet their other objectives, i.e. relocation, retirement, up or downsizing, etc.

 

For example, let’s say I’m a buyer with 10% down payment whose qualifying income is the family median for our area here in Jackson County, Oregon ($55,000 for 2010) whose monthly mortgage payments including taxes & insurance are going to be a third of my income - $1,500. In shopping for a 30 year mortgage, I’m figuring the interest rate I choose will be 4.50% (5.04% apr) and I’ll have homeowners insurance, property taxes and private mortgage insurance monthly that are $400 mo. I can finance $200,000 and stay within my goal of a combined total of $1,500. But, I really want to have my mortgage paid off before I retire in 15 years, and I can get an even better interest rate for the 15 year term – maybe 4.25% (4.42% apr). There are many homes that we would be happy with where we would only need to finance $140,000.

 

If I were a bit younger, and could figure my income would likely increase more before facing the reduced fixed income in our retirement years, I’d probably choose to “buy more house”, and just pay extra when I can and shorten the term of my mortgage myself. But, I want to be totally debt free INCLUDING my mortgage, and am willing to make my choices accordingly. Our home is a long term investment, with no plans to relocate and only one more kid to launch. I think the 15 year mortgage is the ticket to our goal. What do you think?

See you at the closing table!

 

Karen Cooper - Oregon|California Mortgage Consultant - www.Quality4Loans.com

                       NMLS #223305
Providing high Quality, Professional, Ethical service to Oregon and California home buyers and owners since 1983. Whether you are taking out your first home loan or your fiftieth, for your home, your second home or for investment, put my knowledge and expertise to work for you.Call today at (541)608-6003