30 vs 15 Year Mortgages
The 30 year fixed mortgage is by far the most popular among home buyers. What people fail to realize when getting a 30 year loan is that they are actually paying over 2 times what the home is worth.
You could save yourself a lot of money in the long run by getting a 15 year fixed mortgage instead. The payments are only a little higher for the 15 than the 30 but you will save yourself tens of thousands of dollars.
Let’s compare the loans on a $150,000 house with a 6.5% interest rate:
30 Year Mortgage
$948.10 monthly payment
$191,316 interest paid on principle
$341,316 total paid
15 Year Mortgage
$1306.66 monthly payment
$85,198 interest paid on principle
$235,198 total paid
Above you can see that you save yourself $106,118 by getting a 15 year mortgage instead of the 30 year one. Not only that, when you have your home paid off in 15 years, you can put your mortgage payment into investments and make that money work for you instead of working for the bank.
It should also be noted that the payments for the 15 year loan are $359 higher than the 30 year loan. This should not be a problem if you are living below your means. In addition, the mortgage payments should be a little lower than stated above because you can often receive a lower loan rate for a 15 year loan as opposed to a 30 year one.
There are plenty of places to come up with the extra money. You could buy a lot less car, control your everyday spending, or buy less expensive furniture. You would even be better off buying a less expensive house if that is what you had to do to make the payments.
$106,118 will go a long way, especially considering that it may very well turn into a lot more when it is properly invested. The question you should ask yourself is: can you afford to not go with the 15 year mortgage?