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I am the author of this blog and also a top-producing Loan Officer and CEO of InstaMortgage Inc, the fastest-growing mortgage company in America. All the advice is based on my experience of helping thousands of homebuyers and homeowners. We are a mortgage company and will help you with all your mortgage needs. Unlike lead generation websites, we do not sell your information to multiple lenders or third-party companies.
If you plan to get a purchase or refinance mortgage loan, this post will help you decide between a 30 Year Fixed vs. a 15-year Fixed mortgage.
Benefits of a 15-Year Fixed Mortgage
Huge savings in interest cost: The biggest benefit of a 15-year fixed loan is the amount of interest you save. Say the rate on a 30-year fixed mortgage was 4.375% while it was 3.375% on a 15-year fixed. In such a scenario, you save $313,000 in interest cost with a 15-year fixed mortgage compared to a 30-year fixed. This is for a loan amount of $600,000. See chart below
And if you already have a 30-year fixed mortgage at a very low rate, say 3.75%, and thought that refinancing didn’t make sense. Think again. With the same example, refinancing into a 15-year fixed can save you $235,000. (See chart below)
Pay off the loan in half the time: The other obvious benefit of a 15-year fixed loan is that you can pay off the loan in half the time. In fact, that’s one of the reasons (other than the lower interest rate) because of why the interest cost on a 15-year fixed is lower than a 30-year fixed.
The not-so-good news about 15 Year Fixed Loan
Should qualify with the higher payment: As can be expected, the payment on a 15-year fixed is higher than a 30-year fixed. For the first example above, the payment on a 30-year fixed is $2,995.00 vs. $4,252.00 on a 15-year fixed, a difference of $1257.00 per month.
Everything else being the same, you would need a monthly income of $11,450 to qualify for a 15-year fixed loan, while you will only need an $8,650.00 income to qualify for a 30-year fixed mortgage.
Mandated to pay a higher payment: On a 30-year fixed mortgage rate, you pay a smaller payment with an option to pay extra towards the principal if you can. On a 15 year fixed, however, you are mandated to pay a higher amount. The lender still requires you to pay higher even if you run into a financial problem or cash flow issues. Refinancing into a 30-year fixed may not be possible at short notice, especially if you have lost your job.
All these factors need to be considered to be doubly sure that you are ready for a higher payment that comes with a 15-year fixed mortgage.
30-Year Fixed vs. 15-Year Fixed – Which One Makes More Sense? – If you qualify for and are comfortable with the higher payment of a 15 year fixed loan, it’s a no-brainer that it comes with gargantuan savings. Whether you are buying or refinancing, ask your loan consultant to show you the comparison between these two loans.
We at InstaMortgage always provide you with multiple loan options to help you decide which makes more sense for your financial goals.
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