30-Year Fixed Mortgage or 15-Year, Which is Better For My Frederick Home?

Tuesday, September 14, 2010

When I buy or refinance my Frederick home, which mortgage duration is best?

Which is better, a 30-year or a 15-year fixed rate mortgage? An important question which affects both the monthly payment and the amount of interest paid on a mortgage loan. While paying less interest over a shorter time frame is the choice with a 15-year note, the difference in monthly payment is surprising to some.

For instance, on a $300,000 note at 6.25 percent over 30 years, the principal and interest payment is $1,847 per month. On that same loan amount over 15 years at 6 percent, the payment is $2,531.  It’s easy to see why most choose a 30-year loan instead of a 15-year loan; not only is the payment lower but it takes less income to qualify.

On the other hand, more money goes to interest on a 30-year loan compared to a 15-year loan. Using those same figures, the 30-year note gets $364,920 in interest, most of it in the first 10 years of the loan.  The 15-year loan only takes $155,580 in interest. That’s less than half the interest than that of a 30-year loan.

So, which is better? Maybe neither.

Most lenders don't advertise this, but there are more choices available to you. Loan payment periods can actually be acquired in five year increments. You don’t have to choose between a 30 and a 15-year loan You can select a 10, 15, 20, 25 or 30 year mortgage. Some lenders even offer 40-year loans. 

5-Year Increments

Here are the payments for these additional amortization periods on $300,000:

Term(yr)                               Rate                             Payment

    10                                    6.00%                           $3,330

    20                                    6.25%                           $2,132

    25                                    6.25%                           $1,979

Since these five year increments aren’t advertised you’ll probably have to ask your loan officer for a quote.   If you ask, you just might be able to have the best of both worlds:  lower payments with reduced interest charges.

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The Highland Group
Chris Karen Highland * 301-831-9947
Turning Point Real Estate 
email us: isell4u2@msn.com
Text Us: 301-401-5119

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