posted on September 05, 2017 14:12
The 30-year-mortgage has been, and still is, a popular option for home buyers and refinancers. But is it right for you?
There are benefits and challenges to loans of any term (10-, 15-, 20-, and 30-year mortgages), and which is best for you depends on your circumstances.
The shorter-term mortgages, such as 10- and 15-year loans, tend to have lower interest rates than do 20- and 30-year loans.
And from the perspective of the dollar amount you’ll pay in interest over the life of the loan, a 15-year mortgage will cost you less than half of what you’d pay on one with a 30-year term.
For example, a $100,000 mortgage for 30 years at 4% will cost you $71,869 in interest over the life of the loan, while a 15-year loan for the same amount at 3.75% (as noted, it would command a lower interest rate than the 30-year product) will cost you $30,900.
However, the monthly payments on the 30- and 15-year loans are $477.42 and $727.22 respectively.
This is a significant difference, and you’re probably tempted by the 30-year term with the lower payment. But you may want to consider your long-term strategy now. Why? Interest rates, while increasing, are still near historic lows.
But if they continue to rise, they’ll affect your buying power in terms of the purchase price of a new home, and the ability to find a monthly payment you can afford. In this case, the shorter-term product would be better in the longer run.