Consider the Long-term Benefits of the 15-year Mortgage

When you’re shopping for a mortgage, you should at least consider the 15-year option. The payments will be higher than on a 30-year mortgage, but the long-term benefits are considerable.

First, interest rates are typically lower on 15-year mortgages than on their 30-year counterparts. A 0.25% difference in interest rates may sound minimal, but taken over 180 payments – the number of payments you’d make on a 15-year mortgage – it can add up to a huge difference.

Also, as you are paying on the mortgage for only 15 years, the total interest expense (money that all goes to the lender) will be much less.

For example, if you were to borrow $160,000 for 30 years at 4.25% or 15 years at 4.00%, your payments would be $787.10 and $1,183.50 respectively. The 15-year monthly payment is significantly higher, but thinking long term, your payments would total $283,356 for the 30-year mortgage compared to $213,030 for the 15-year mortgage.

This is a saving of $70,326, making the shorter term well worth it – providing, of course, you can manage the higher payments for the 15-year duration of the loan.

Another option is to take the 30-year mortgage and pay down the principal each month. Even with a 4.25% rate, if you were to make an extra 1/12 payment toward the principal each month ($65.59 on the 30-year mortgage as described above), you would shave off seven years at the end of the mortgage and save $19,903.59 in interest.

Your mortgage professional will help you select the option that’s best for you.