which is the better mortgage term?

[Guest]

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

[Guest]

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

[Guest]

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

[Guest]

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

[Guest]

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?

[Guest]

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.

[Guest]

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

[Guest]

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

[Guest]

We opted to take the 30 year and pay extra. That way if an emergency
comes up or I decide to quit one of my 2 jobs we won’t be trying to
find the extra money to make up the difference. But I think you also
need to take into consideration, is the rate fixed or not and whether
they are offering the same rate for both lengths-a lot of times not.

[CountryGrl21]

Opt for a fixed rate, never get an adjustable rate unless you plan on selling within the first 2 years. Once that rate adjusts chances are your monthly payment will rise substantially.

[Author]

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