For most Columbus home buyers, the 30-year, fixed-rate mortgage is the loan of choice. The long repayment period makes home ownership more affordable, enabling you to buy more home for the money. But before you lock in 360 consecutive mortgage payments, you should give consideration to the 15-year term.
A 15-year fixed-rate mortgage will save you interest expense over the life of the loan. The interest rate on a 15-year mortgage is generally lower, and the faster amortization helps you build equity. If your goal is to own your home free and clear, the 15-year mortgage helps serve your plans.
The downside: the principal and interest portion of your monthly payment will be much higher than a 30-year mortgage. Once you are committed to this higher payment, there’s no turning back. (Unless you are able to refinance into a longer term mortgage, or sell your home.) 15-year mortgages work best for those who have confidence in their income consistency and financial reserves.
Here’s a comparison of a 15-year mortgage vs. a 30-year mortgage on a $300,000 principal balance. Please keep in mind that these examples are for illustration only; the difference in rates between the two mortgage terms can be greater or lesser, depending on conditions in the financial markets. The actual rates you are offered by a lender depend on your personal creditworthiness.
15-year fixed-rate mortgage, rate of 3.875%, loan amount of $300,000:
- $2,200.32 principal and interest payment per month
- $96,057.23 total interest over life of loan
30-year fixed-rate mortgage, rate of 4.25%, loan amount of $300,000:
- $1,475.82 principal and interest payment per month
- $231,295.12 total interest over life of loan
While the 15-year mortgage saves interest expense in the long run, homeowners who plan to sell in 7 or 8 years may not be concerned about this issue. Also, the hefty monthly payment on a 15-year mortgage can be unfeasible for buyers who need the lower payment – and leveraged buying power – of a 30-year mortgage.
Home buyers who take out a 30-year mortgage can save interest and pay off their loan sooner by making additional payments to principal. This gives you the flexibility to pay down the mortgage faster as your cash flow allows. We’ll be happy to refer you to local, trustworthy lenders who can explain all of your mortgage options!
Which mortgage term is right for you? We will help you explore the answer! As your Exclusive Buyer’s Broker, we serve your best interests at all times! Unlike real estate agents and brokerages who represent sellers, as an Exclusive Buyer’s Broker, we only represent you, the buyer, getting you the best price and terms with no conflict of interest at all times.
Understanding this distinction could literally save you thousands of dollars not only on the purchase price and terms, but also on seller concessions and home inspection issues, whether you are a first-time homebuyer or an experienced homeowner!
Contact us with your home buying questions! Remember, we are with you every step of the way…all the way home!
Exclusive Buyer’s Broker, CEBA-M, MCNE, CSP, PSA,e-PRO, CREM, ABRM, AHWD
Buyer’s Resource Realty Services, www.buyershome.com
Serving Metro Columbus, Ohio with Exclusive Buyer’s Agents
7100 North High Street, Suite 204, Worthington, Ohio 43085
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