Save $100,000 on mortgage interest costs! Sound
impossible? Not really. An old-time mortgage that is once again
proving popular allows home buyers to do just that. It is the
15-year fixed-rate mortgage that lets home buyers own their homes
free and clear in 15 years. And, while the monthly payments are
somewhat higher than a 30- year loan, the interest rate on the
15-year mortgage is usually a little lower, and importantly:
- The home buyer pays less than half the total
interest cost of the traditional 30-year mortgage. The
purpose of this page is to help prospective home
buyers explore the 15-year fixed-rate mortgage - a
new option for saving on total mortgage interest
costs.
Who It's For
The 15-year fixed-rate mortgage has proved popular with
two very different groups of home buyers. First, it enables young
home buyers with sufficient income to meet the higher monthly
payments to pay off the house before their children start college. They own more of their home faster with this kind of mortgage. Other
home buyers, who are more established in their careers, have higher
incomes and whose desire is to own their homes before they retire,
may also prefer this mortgage. The 15-year fixed-rate mortgage gives
them additional financing options using the house's equity. For
example, they can easily take out a second mortgage if they want to
make use of the equity in their home. But you need not fall into
either category to appreciate the savings the 15-year fixed-rate
mortgage affords home buyers. Let's take a closer look at some of
the pros and cons of this type of mortgage and what savings you may
expect.
Advantages
The 15-year fixed-rate mortgage offers the
qualified consumer five big advantages.
- You own your home in half the time it
would take with a traditional mortgage.
- You save more than half the amount of interest of a
30-year mortgage. On a $75,000 mortgage at 9.5 percent,
you save more than $95,000.
- Lenders usually offer this mortgage at a slightly
lower interest rate than with 30-year loans--typically 0.5
percent to 1.0 percent lower. It is this lower interest
rate added to the shorter loan life that realizes
the savings for 15-year fixed-rate borrowers.
- Fixed-rate means exactly that - no matter
where mortgage interest rates go, the payments for this mortgage
stay the same from the first to the last. This helps many
borrowers plan their budgets with more certainty. They
know that their monthly payments will not increase
(or decrease) and throw their financial planning
off.
- Fifteen-year mortgages can be insured by
the Federal Housing Administration (FHA) and the
Veterans Administration (VA), and with private
mortgage insurance.
Disadvantages
The disadvantages associated with a 15-year
rate mortgage are really the qualifiers that will tell
consumers if this is the mortgage for them.
- The monthly payments for this type of
loan are higher than those for a 30-year mortgage,
roughly 10 percent to 15 percent higher per month.
- Because borrowers pay less total interest
on the 15-year fixed-rate mortgage, they lose the
maximum mortgage interest tax deduction.
Compare Them Yourself
At right is a comparison of a $75,000 mortgage with terms
of 15 and 30 years. We used a 15-year mortgage at a half percent
lower rate, which is typical in today's market. As you can see, the
15-year mortgage saves more than $95,000 over the traditional
30-year loan.
Want To Know More?
For more information about 15-year fixed-rate mortgages,
or to find out if you qualify, talk to your mortgage lender. He or
she will be able to help you select the mortgage that is best for
you.
30-year at 15-year at 10 percent 9.5 percent Monthly
Payment (Principal and Interest) $ 658 $ 738 First Year Interest
Cost 7,481 7,023 Mortgage Balance 74,583 72,625 Fourth Year Interest
Cost 7,336 6,244 Mortgage Balance 73,052 63,991 Total Interest Cost
Over the Life of the Loan $ 161,942 $ 65,970 Difference From 30-year
Total - $ 95,972