Is A Fifteen Or Thrity Year Mortgage Better?

Consumers shopping for a mortgage typically think in terms of the interest rate and how that effects their monthly payment. The lower the rate the better. Borrowers are often shocked when they realize the amount of money they'll pay in interest when their mortgage matures.

We'll examine the 15-year plan first. If you think you can't afford to pay off your mortgage in half the time, you may be wrong. While the monthly payment is higher, the interest rate is a bit lower, which offsets part of the increase in the payment.

Most importantly, you end up paying less than half the interest over the life of the loan. If you borrow $100,000 for 30 years at 8 percent you will end up paying the lender over $264,000 ($100,000 for the principal and $164,000 in interest).

If you put $193 into savings how far ahead would you be in fifteen years? Well, $193 every month into a money market account, earning 4 percent interest your money would grow to $47,495 in fifteen years.

But by paying the $193 monthly on your mortgage you would save double interest and pay the loan off much faster, yet lose your tax deduction on the home sooner. So this is not as simple as it all sounds.

In summary, here are the pluses for a fifteen year mortgage: 1. You build equity much more quickly. 2. You own your own home in half the time. 3. You same more than half the amount of interest. 4. The rate is lower and stays the same throughout the life of the mortgage.

Now let's check out the thirty year plan. One reason 30-year mortgages are popular is their relatively low monthly payments. The lower the monthly payment, the easier it is to qualify for the loan. Your personal financial situation should dictate which loan is best for you.

For example, if your future is uncertain, a 30-year mortgage with lower monthly payments will give you more control over your finances. If you are locked into a 15-year mortgage with higher payments, you are obligated to pay this amount each month.

If you desire the biggest tax break possible, you may want a 30-year loan with interest only payments. As your mortgage balance decreases so does your tax write-off. One of the largest advantages you have with a 30-year loan is the freedom of payment.

Let me explain, having a 30-year mortgage you can turn it into a 15 or 16 or 17 year mortgage if you desire. Lenders usually permit borrowers to make additional principal payments. When you have extra funds you can apply them to your loan lowering the years of your mortgage.