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The 30 Year vs. the 15 Year Rate

Posted by:  Chip Poli
2012-11-05 13:05:29

Okay, you've done your homework, made your phone calls and conducted countless interviews. But you've done it. You've decided on a lender. It’s all downhill from here, right? Well, maybe. Now you have to decide which loan program is best for you.

Loan programs fall into two basic categories when it comes to type: fixed and adjustable. A fixed rate mortgage is just that; it’s fixed throughout the term of the loan. That also means your monthly payment will never change. An adjustable rate mortgage, as its name implies, can change throughout the term of the mortgage based upon a predetermined set of guidelines that both you and the lender agree to.

Which to choose? That can vary based upon the current interest rate environment but historically when rates are low then you should lock in a fixed rate and when rates are high perhaps an adjustable rate mortgage is your better bet in anticipation of rates falling in the near future. With that advice as your guide, fixed rates are likely your best choice, especially if you intend to hold onto the property for any length of time.

Once you’ve decided on a fixed rate, you now have another choice; loan term.

Do you want a 30 year fixed rate or a 15 year fixed rate?

Financial planners and other number gurus will suggest that a 15 year fixed rate loan is your best bet because you’re paying much less in interest over the course of the mortgage. How much? Let’s consider a $400,000 mortgage loan at 3.25 percent for a 30 year and 3.00 percent for a 15 year, a typical spread.

Term Payment Lifetime Interest

30 yr - $1,740 - $226,400

15 yr - $2,762 - $97,160

Difference $129,240

As the chart above clearly shows, by selecting the 15 year fixed rate mortgage you will save $129,240 in interest savings over the course of the loan term, who wouldn’t take that? Well, there are many who wouldn’t. Why?

Notice one other thing about the chart; the difference in monthly payments. While there is a considerable about of interest saved when compared to a 30 year mortgage the monthly payments on the 15 year loan are so much higher. So much higher that the borrower no longer qualifies for the mortgage due to the higher monthly payments. Back to the 30 year mortgage then, right?

Not so fast.

30 year or 15 year mortgage?


Poli Mortgage Group offers other loan terms besides the 30 and 15 year fixed rate mortgage. It’s rare that you see lenders advertis these terms but we do in fact offer other them, typically in five year increments. This means we can offer a 30, 25, 20, 15 and 10 year fixed rate loan even if it’s not advertised. Now let’s look at the difference in payments and long term interest:

Term Payment Lifetime Interest

30 yr - $1,740 - $226,400

25 yr - $1,949 - $184,700

20 yr - $2,218 - $132,320

15 yr - $2,762 - $97,160

10 yr - $3,862 - $63,440

The choice is no longer between a 30 year fixed rate mortgage and a 15 year fixed rate; there are others. By using this information, a borrower can still find a comfortable payment that results in less interest paid when compared to a 30 year loan. All lenders have these options: sometimes you just have to ask.

Rates. Integrity. Service.


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