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Navigating Choice Between 15-, 30-Year Mortgage

A look at pros, cons of loan terms

June 1, 2017

By HOLDEN LEWIS Bankrate.com (Tribune News Service)



The most common type of home loan is the fixed-rate mortgage. The interest rate remains the same for the life of the loan, so the principal and interest you pay remain the same, too.

A mortgage's term is the number of years you have to pay it. You have two main choices: a 30-year term or a 15-year term.


30-Year Vs. 15-Year Mortgages


30-year:
Pro

  • For a given loan amount, the monthly payments are lower.

Cons

  • You pay more total interest over the life of the loan.
  • The interest rate is higher.


15-year:
Pros

  • You pay less total interest over the life of the loan.
  • The interest rate is lower.

Con

  • For a given loan amount, the monthly payments are higher.


The 30-year fixed-rate mortgage is more popular than the 15-year because it provides a lower monthly payment for the same loan amount. This means that if you know how much you can afford every month, you can borrow more money -- and get a more expensive home -- with a 30-year fixed.


Similar Payments, Different Amounts
Gene can afford about $1,000 a month in principal and interest. Gene can choose between a 30-year fixed with an interest rate of 4.5 percent and a 15-year fixed at 4 percent:

  • 30-year fixed at 4.5 percent: $1,013 monthly principal and interest for a $200,000 loan.
  • 15-year fixed at 4 percent: $1,013 monthly principal and interest for a $137,000 loan.

For the same monthly payment, Gene can borrow $63,000 more with a 30-year fixed.

But that's not the entire story. For the same loan amount, you pay more interest with a 30-year fixed.


Same Amounts, Different Interest
For a $200,000 mortgage:

  • 30-year fixed at 4.5 percent: $164,813 total interest for the life of the loan.
  • 15-year fixed at 4 percent: $66,288 total interest for the life of the loan, or $98,525 less.

 


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To see more of Bankrate.com or to subscribe to the newspaper, go to http://www.bankrate.com

Copyright (c) 2017, Bankrate.com

Distributed by Tribune News Service.


This story was distributed by TNS - Tribune News Service
 
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