Should You Get a 15-Year Mortgage?

[Jul 31, 2009.]

 

Many homebuyers turn to 30-year mortgages to finance their purchases. But more people have been using 15-year mortgage loans lately, according to a recent article in the New York Times. Let's take a look why homeowners might consider 15-year mortgages.

Home Mortgages Paid off in 15 Years

There were 74,497 15-year mortgages issued in February, compared with 42,178 a month earlier, according to real-estate consulting firm First American CoreLogic. Part of that increase may be due to homeowners refinancing the balance their home loans. There are several factors borrowers should consider when choosing a home mortgage for purchase or refinance.

—Some borrowers like the idea of paying off their mortgage debt as quickly as possible. A 15-year loan can allow them to own their home free and clear in half the time they'd be able to with a 30-year mortgage. For many people, being free of mortgage debt is simply a practical solution that can eventually allow them to keep more of their income.

—Mortgage interest rates are lower on 15-year loans, compared with 30-year loans. For instance, mortgage interest rates this week averaged 5.25% for 30-year-loans and 4.69% for 15-years.

—A 15-year mortgage means a homeowner will have higher monthly payments but pay less interest over the life of a loan. For instance, borrowers can use a mortgage calculator to determined that a loan for $165,000 for 30 years at 5.25% would have monthly principal and interest payments of $911.14. The total interest paid over the life of the loan would be $163,009. Borrowing the same amount for 15 years at 4.69% would result in monthly payments of $1,278.32. The total interest paid would be $65,097.60. It's important to play with the numbers in a mortgage calculator to see how payments would differ with different loan packages.

—Some people who currently have a decent income may choose a 15-year mortgage loan, but some experts caution that that income could take a hit in the event of a sudden job loss or drop in wages. It's important to remember that homeowners who take out a 30-year mortgage can still make extra payments to pay down their principal quicker. Borrowers who decide to go that route should make sure they have a home mortgage that won't penalize them for paying off their loan early.

Mortgage Quotes Help Compare Loans

Whether borrowers are purchasing a home or refinancing, they should get mortgage quotes for different loan products to make sure they understand all their options. People can get mortgage quotes from a network of trusted lenders here.

 

About Author:

Francine L. Huff is a freelance journalist and the author of The 25-Day Money Makeover for Women. She has appeared on a variety of TV and radio shows.