30 Year vs 15 Year Mortgage [September Tips From Tyler]

What if I told you that when you're through reading this article, you'll be in possession of information that will save you hundreds of thousands of dollars?

Forget Dave Ramsey, this single tip alone can save you more money than you've ever saved in your life!

This article contains a secret that most mortgage lenders don't want you to know and the only way I found out about it is through a phone call with my go-to lender – Nick Isbey .

The conversation started because I am currently looking to purchase a home and asked Nick about the benefits of choosing a 30-year mortgage vs a 15-year mortgage.?

Before we get into the pros and cons of each one, let's look at a quick example.

30-Year Mortgage Example

The 30-year fixed-rate mortgage is what most folks are accustomed to. It's the type of loan the vast majority of home buyers choose.

For this example, let's imagine you're borrowing $500,000. The current interest rate for a 30-year fixed mortgage is 6.11% according to Mortgage News Daily.?

Here are the results after inputting this information into an amortization calculator:

So, that $500,000 loan is going to cost you another $591,954 in interest for a total cost of $1,091,954 over the 30-year life of the loan.?

Let me put that into perspective. Let's say you decide to purchase a $600,000 home and save up $100,000 for your downpayment. Once you finish paying off your mortgage in 30 years, you will have paid a total of $1,191,954 to?purchase your $600,000 house!!

What's even more shocking is that, for the first 15 years of your loan, the majority of your monthly payment will go towards paying interest, not principal.?

Put another way, if you purchased a home today, the majority of each month's payment will go toward interest until the year 2043. This is due to a little thing called amortization.

15-Year Mortgage Example

So, we've established that if you decide to choose a 30-year fixed-rate mortgage with a $500,000 loan amount, your total cost of the loan will be?$1,091,954.

Let's crunch the numbers for a 15-year mortgage to see if they are more favorable.?

Right off the bat, if you choose a 15-year mortgage, you are getting a slightly better interest rate according to Mortgage News Daily. The average 15-year fixed-rate mortgage is currently?5.63%.

Here are the results after inputting this information into an amortization calculator:

The first thing you'll notice is that the monthly payment is significantly higher – $4,120 vs $3,033. This is because you are paying the loan off in 15 years vs 30 years.?

That shorter timeline and slightly more favorable interest rate also mean you pay less interest over the life of the loan – try $350,356 less interest!

Using the same example as last time, that $600,000 house will now cost you $841,598 instead of?$1,191,954.

What's The Catch

I know what you're thinking...if the 15-year option is the better financial decision, why doesn't everyone choose it?

The reason comes down to the monthly payment. With home prices elevated, most buyers cannot afford the higher monthly payments that come with a shorter-duration mortgage.

That being said, you don't have to commit to a 15-year mortgage to benefit from a shorter-duration loan. Read the secret below ???

Here's The Secret

You are allowed to pre-pay any conforming loan without penalty. This includes conventional, VA, FHA, and USDA loans.

My advice would be to commit to a 30-year loan. But, instead of making the minimum required payment each month, pay an additional $100, $150, $200, or whatever you can afford and watch your loan disappear.

My preferred lender, Nick, introduced me to this nifty calculator that shows how your loan will decrease with just a small additional payment each month and the results are mind-boggling!

Time for another example: Let's use the same $500,000 loan at a 6.11% interest rate. We already established that your monthly payment will be $3,033. But, if you paid $150 more – literally the cost of eating out a few nights per month, you can save?$83,966 in interest and pay off your loan ?3.5 years quicker.

The bottom line – if you're paying your minimum monthly payment, you're playing "house rules." You're doing exactly what the lender wants you to do. It's like going to a casino and playing slots.

I'm interested in hearing what you think!

Do you make additional mortgage payments or do you only pay the minimum required amount?

Comment or DM me to let me know!

About Felix Homes

Felix Homes is where five-star service meets low commissions. To date, we've saved our clients?$1,521,751 in commission fees and have earned 113 five-star reviews on Google!

How are we able to offer five-star service AND lower commission fees? It's simple:

1. We're an independently owned brokerage –?not a franchise which allows us to keep more of the commission we earn.

2. By offering a lower commission, more folks want to work with us which means we close more deals. By closing more deals, we can pass more savings along to our customers!

If you have any questions about the state of the market or the home buying/selling process, please feel free to contact us at [email protected] or 615-422-4277.