Searching for the right mortgage? You may be thinking about what is best for you right now, but have you thought about what is best for the long term? Consider a 15-year fixed rate mortgage instead of the more common 30-year mortgage. Think about it. Only paying for 15 years on the mortgage means that your home will probably be paid off before your children leave for college. You will be able to retire without a mortgage payment, which often delays retirement. By cutting your mortgage term in half, you may be thinking that you are doubling your payment. You aren't. In fact, 15-year mortgages are very affordable. The monthly payments are a little bit higher and the interest rates are usually lower. What is amazing is the long term savings in interest. For example, if you were to borrow $100,000 at 8% for 30 years, you would pay the lender $164,000 in interest in addition to the original $100,000 borrowed. Borrowing $100,000 at 7.5% interest for 15 years results in a total interest paid of $66,862. That's a savings of $97,293. If the increased payment concerns you, there isn't really too much of a difference. The 30-year has a monthly payment of $734, while the 15-year has a payment of $927. If you can find $193 extra each month, you could save over $97,000 each year. Makes a lot of sense when you think of it in those terms! What if you simply invested that $193 each month instead of putting it towards your mortgage? If you were able to invest it every month, without missing a single month, for 15 years, you would earn $47,495, if you were able to find an account earning a steady 4% interest. Yes, you are getting less of a tax deduction by paying less interest. But tax deductions aren't dollar for dollar savings. If you are in the 28% tax bracket, you are only saving 28 cents for every dollar you pay in interest. Seventy-two cents goes to the lender and is never seen again. What do you think: is 28 cents better than just saving the whole dollar to start with? Personally, I am really bad about being disciplined enough to put the difference into savings each month. I know that the money would just be absorbed by our living expenses. Plus, with a 15-year mortgage you are gaining equity a lot faster. You own your home in half the time. You save thousands in interest. A 15-year mortgage could help you in becoming financially free and retire much sooner than a 30-year mortgage. You may find that the 15-year mortgage is right for you. Do the math before you decide what type of mortgage to go with. Think long-term. It's easy to simply look at the monthly payment, especially when you are trying to get into a costly home, but remember that you will pay much more for the home over thirty years than you will over fifteen. |
