Yes, There Are Alternatives to a 30-Year Mortgage

Mortgage rates have risen over the past year, and they could continue to do so in 2019. With this in mind, buyers planning to purchase or refinance a home may want to consider 15-year and 10-year mortgage options.

Why? There are a couple of reasons.

First, interest rates on shorter-term loans are normally lower than they are on loans with 30-year terms.

The second reason is that, over time, you could save tens of thousands of dollars in interest expense with a 10-year or 15-year loan.

Of course, since your payments are spread over a shorter period of time, each payment will be higher.

To compare the two, let’s use a $125,000 mortgage as an example. This loan, at 4.5% for 30 years, will carry a payment of $633.36 before taxes and insurance. The same loan amount with a 15-year term and a rate of 4.25% will have a payment of $940.35. The 10-year option will carry a payment of $1,280.47.

Yes, there is a significant difference in the amount of the payment, but, over time, you’ll make $228,009.60 in payments on the 30-year loan, $103,009 of which is interest. With the 15-year option, you’ll spend $169,263 in payments, of which $44,263 is interest.

The difference in interest expense between the two is $58,746.

If you’re unable to swing the higher payment but want to reduce your interest expense over time, you could add additional money to your monthly payment.

In fact, on a 30-year mortgage, if you add just 1/12 of your principal and interest to your payment each month, you’ll reduce your total loan term by close to four years. In our example above, this would require paying an additional $52.77 with the $633.36 monthly payment.

Interested in paying off your house faster? To learn how you can save on your mortgage, contact me to review your payment options. I’m here to help!