Lots of Variables with Fixed-Rate Mortgages
When selecting a fixed–rate mortgage, a prospective borrower has to determine how many years to finance to loan. Some financial institutions offer 10- and 20-year fixed–rate mortgages as well as 15- and 30-year fixed-rate home loans.
For the purpose of comparison, this worksheet takes a look at 15-year and 30-year fixed-rate loans.
Tip: Payment Practices. Depending on the loan, a home buyer who chooses a 30–year mortgage may have the option to make extra payments. In a sense, this enables the borrower to treat the long-term loan like a short-term one.
Source: Bankrate, 2012
The payments on a 30-year mortgage are generally lower than 15-year loans, but their interest rates tend to be higher. The lower payment comes from spreading out the loan over twice as many payments. Because of the longer time frame, a 30-year mortgage owner pays more in interest payments than a 15-year mortgage holder.
Fast Fact: Heating Up. Forty percent of borrowers who refinanced a 30-year fixed-rate loan in the third quarter of 2011 opted for 15- or 20-year mortgages — the highest percentage since 2003.
Source: FreddieMac, 2012
A 15-year mortgage is paid off twice as quickly as 30-year mortgage, which allows the home buyer to build equity at an accelerated rate. The payments on a 15-year loan are higher — but they aren’t usually twice as high — as a 30-year loan.
To get a better idea of the differences, take a few minutes and add some numbers to the worksheet on the next page.
The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. This material was developed and produced by FMG Suite to provide information on a topic that may be of interest. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security. Copyright 2013 FMG Suite.
Post by Phil Ratcliff
Phil Ratcliff, President of rebel Financial, is a senior financial advisor that holds an AIF®, CFP®, ChFC®, and CLU® certifications. He started his career at American Express Financial Advisors in 2003, then moved to AXA Advisors for 7 years before founding rebel Financial LLC in 2013.
