Too few buyers question the need for a 30-year mortgage

NEW YORK – July 17, 2018 – For those looking to buy homes, the most popular way to finance a home purchase is to take out a 30-year mortgage. With mortgage rates having been exceptionally low for years, it has been possible to get extremely attractive monthly payments even on relatively large mortgage loans, and the 30-year term gives homeowners a long time to get their mortgages paid off.

Yet what’s somewhat surprising is that relatively few people look at an alternative to the 30-year mortgage. A 15-year mortgage requires larger monthly payments, but the interest rates are almost always significantly lower. For instance, right now, a typical 30-year mortgage has an interest rate that’s more than a half-percentage point higher than what 15-year mortgages charge.
A half-percentage point doesn’t look like a lot. But when you compare the amount of interest you’ll pay on a 15-year mortgage at 4 percent compared to the corresponding amount on a 30-year mortgage at 4.5 percent, the difference is astounding.

You actually save twice with a 15-year mortgage. You have a lower rate, but the main reason why you pay so much more interest on a 30-year mortgage is simple: You take twice as long to pay down a 30-year mortgage.

For example, on a $200,000 loan, monthly payments on a 30-year mortgage at 4.5 percent will be around $1,010. A 15-year mortgage at 4 percent will have payments of about $1,480. The $470-per-month difference pays down the principal balance on the loan much faster, and over time, that adds up to massive interest savings.

Copyright 2018, USATODAY.com, USA TODAY, Dan Caplinger


Debbie Dawson, Realtor®
Multi-Million Dollar Producer
Licensed at RE/MAX Advantage Realty
10710 State Road 54, Suite C101
Trinity, Florida 34655
727-709-9541
www.YourHomeTampaBay.com
www.DebbieDawsonRealtor.com

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