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  1. #1
    jpoo68
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    Fire which is the better mortgage term?

    Hi all:

    Does anyone know which works out better ... getting a 15 year mortgage
    term, or getting a 30 year term and paying the extra $300 (or whatever
    the difference would be) each month? I thought I once heard it works
    out better to take the 30 year and pay the same amount each month as
    the 15-yr payment would have been, that it would be paid off a couple
    years sooner. And you have to specify that the extra $300 is going
    towards the principal when you pay it. Anyway, does anyone know for

    sure? Thanks!

    Jill

  2. #2
    J Diane Northcutt
    Guest

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    Re: Budget101.com : which is the better mortgage term?

    In the Dave Ramsey 13 week FPU course, they taught us to only take the 15 year mortgage. Everyone that had the 30 year mortgage was encouraged to refinance to a 15 year.

    Diane

  3. #3
    Sandy Baker
    Guest

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    Re: Budget101.com : which is the better mortgage term?

    Hi there!

    If you use this calculator from Bankrate.com you can see the difference. Just punch in the different options and then scroll to the very bottom to see the interest paid on each. It would matter what interest rates you got for each term length, too.

    Mortgage Calculator -- Bankrate.com

    Sandy

  4. #4
    Suzanne Fesmire Gibbons
    Guest

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    Re:which is the better mortgage term?

    One thing to keep in mind is that with the lower 30-year-term payments, you have
    some flexibility. If you have the extra $300 to send in that month towards
    principal, great. If not, you can just send in the required amount. Selecting
    the 15-year-term locks you into paying that higher amount all the time.

    Suzanne

  5. #5
    Monique
    Guest

    Default

    Re: Budget101.com : which is the better mortgage term?

    Getting a 30 year mortgage would allow you to do 1 thing that getting
    a 15 year mortgage won't - make the minimum monhtly payment when
    something "goes wrong". 15 year mortgage payments are higher than 30
    year mortgage payments. If something happens, such as job layoff,
    illness, having to take care of a sick parent out of state, etc, on a
    15 year mortgage, your minimum payment must still be met. If you take
    a 30 year mortgage, make the additional principal only payments
    consistently and methodically as you plan to, in the event that you
    are unable to make that higher payment for 1 month or more, you are
    able to "fall back" on the lower monthly payment required by the 30
    year mortgage.

    For example, using bankrate's calculator, the average 30 year mortgage
    interest rate is 6.31%. The average 15 year mortgage interest rate is
    5.83%.

    Using that information on a $150,000 mortgage, these are the results:

    30 year monthly payment $929.44. Without extra principal-only
    payments, your loan would be paid 08/2038.
    You will pay interest of $184,597.39, for a total loan of $334,597.39.


    If you take the additional $322.61 that you would pay monthly on a 15
    year mortgage, and add it as a monthly principal-only payment to this
    loan, your loan would be paid off 06/2024 (10 months later than it
    would on the 15 year mortgage), your total interest payment would be
    $87,340.87 (an additional $11,971.87 over the interest of a 15 year
    mortgage).


    15 year monthly payment $1252.05, an increase of $322.61. Without
    extra principle-only payments, your loan would be paid 08/2023.
    You will have paid $75,369 in interest, for a total loan of $225,369.


    So, if you are absolutely okay with paying the higher 15 year mortgage
    monthly payments each and every month, regardless of your job
    situation, layoffs, illnesses, etc, then do the 15 year loan. If your
    current payment is less than $1252, then I wouldn't suggest a 15 year
    loan to make a higher monthly payment.

    If you'd like the "cushion" of knowing that in a financial crisis you
    can use that extra money ($322.61 in this example) towards other
    bills, then do the 30 year mortgage, and be faithful in making the
    additional principal-only payments every single month.

    You also need to take into consideration how long you will be in the
    house, the closing costs on the mortgage, the taxes and insurance
    payments that aren't included in the example, etc. While those costs
    don't change based on the mortgage term, they generally do increase
    over time. So, will you be able to afford the higher monthly payment
    along with the taxes and insurance payments?

  6. #6
    Bill Stevens
    Guest

    Default

    Re: Budget101.com : which is the better mortgage term?

    take the 15 year when people take a 30 year and say they will pay it like
    a 15 year it almost never happens if you plan to pay it like a 15 year it only makes since to take a 15 year.

  7. #7
    Bain Family
    Guest

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    Interest, discount points, and some other costs are usually higher for the 30-year loan than the 15-year. Other than that, adding the extra principal each month works out the same.

    If you go the 30-year route and make extra principal payments, even though you are "ahead" in your payments (because you have been paying extra each month) some banks will still require the minimum monthly payment to be made, so if you reason that you are "ahead" in your payments and you decide to skip a month, the bank may still consider that a missed payment because you didn't make the minimum payment in the 30-day window they require a payment to be made.

    Good luck!

    Lana

  8. #8
    Herlean
    Guest

    Default

    I would go for the 30 year. If you pay extra great. If you can't you are still okay with the regular payment. If you choose to pay it off in 15 years, there is no penalty - if you have no pre-payment penalty contract - but you are not obligated to pay the extra $300 (as in your example).

    Herlean

 

 
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