Within the mortgage industry, when we hear about various types of mortgage products from a 1st time buyer program to one of a standard conventional 20% down, the respective interests rates for the most part are always quoted on a 30 year term. As it is so common within the industry to quote and refer to a 30 year fixed rate mortgage, many people have never been educated to the benefits and considerations of another viable option…a 15 year fixed rate mortgage. When it comes to buying a home, you should consider your present situation and future life goals to determine which one is best for you.
In looking at each, a 30 year fixed rate mortgage is exactly that, a mortgage of a certain loan amount where your monthly payments are the same for a period of 30 years or 360 months. On the other hand, a 15 year mortgage has the same fixed monthly payments, and yet, for a period of 15 years or 180 months…which is half the time. Here are a few things to consider about each:
- The 15 year interest rate will be lower than the 30 year. At the time of this article, the rate for each are as follows:
- 30 yr. fixed 4.00%
- 15 yr. fixed 3.625%
- The 15 year mortgage comes with a higher monthly payment. On a $500,000 loan amount, your monthly (P & I) payments for each are as follows:
- 30 yr. fixed $2,387.11
- 15 yr. fixed $3,605.29
- Over the life of the loan, the total interest paid (cost of borrowing the money) of each loan is as follows:
- 30 yr. fixed $359,347.53
- 15 yr. fixed $148,933.08
What does this for someone who is considering a home purchase in 2019? If your present goals are to get your foot into the door of home ownership and you forecast your income to be stable with little or no growth potential for the foreseeable future, you may want to consider a 30 year mortgage. This is especially true if you have or are thinking of starting a family as you’ll need to consider the additional costs of doing so. On the other hand, if you are in the growth years of your occupation and or your present income can comfortably allow you to make the higher monthly payment, a 15 year mortgage is a great consideration.
If owning investment property in the future is part of your long term goals, the accelerated principal pay down offered by the 15 year mortgage can get you there that much sooner. After 5 years of ownership, your loan is a third of the way paid off with an increased equity position, from which you could borrow against to make an investment property purchase. Another option would be to consider purchasing a smaller, less expensive property now with a 15 year mortgage, and in 5-7 years, using the equity buildup to purchase a larger primary residence. If you expect your income to go up during that same period, you’ll more than likely be able to afford the larger home, and you can now rent out your original purchase as an investment property, while maximizing the tax advantages of doing so.
If you’re considering buying home in 2019 and would like to know more about the options of a 30 year vs a 15 year mortgage or have questions about the LA Westside market in general, feel free to call or shoot us a text at 310-403-7381, or email us at email@example.com.