30 Year loans are a Marathon not a 15 Year Sprint
Those looking for a home loan tend to focus mainly at the mortgage interest rate when looking for the right mortgage loan. They often track mortgage rates daily, and keep notes on any movement of interest rates. In doing this, they often try to predict a trend in interest rates, and in which direction the rates will move at any one time. Smart move, but doesn’t always ensure the best home loan.The mortgage rate paid by the purchaser is important but is not the only factor that determines monthly mortgage payments. In addition to the mortgage rate, another key factor coming into play is the duration of the home loan itself. Longer mortgages mean lower payments, but is a mortgage something that everyone wants to be paying off still 30 years down the road? Amortizing the home loan over 30 years, for example, is standard, but is not the only option that will partake in monthly payments. Also, it does not fully take into consideration the equity that could be built in a home.
In a 15 year home loan, mortgage payments will be higher, but equity will be built more rapidly. Also, it will be easier to find a lower interest rate this way. Suppose it is possible to find a lower interest rate when going with a 15 year home loan, as compared to a 30 year home loan, it should be known that monthly payments will typically be around 35% higher. This sounds like a lot, but consider the interest expense over the duration of the loan, and now the interest paid will be about 60% less. This could save some big bucks in the long run. Who ever said slow and steady didn’t win the race?
To recap, a 15 year mortgage loan could reduce the total interest paid on a home loan. It might also accelerate the rate in which equity is built on the home, regardless of the interest rate. Even though a lower rate will is possible over a 15 year mortgage loan, it is still reachable when going for a 30 year fixed rate mortgage. If the budget allows financing a home purchase over 15 years, it should be highly considered. In the long run, it will save thousands.
