Why take a 30 year loan? A 15 year loan is much better! (interest rate, foreclosure)

[Need_affordable_home]

Why take a 30 year loan? A 15 year loan is much better!


$200k house, 10% downpay 30 year loan at 6.5%
$1,138 a month times 360=$409680!


$200k house, 10% downpay 15 year loan at 6.2%(yes its cheaper)
$1,538 a month times 180=$276840


The 15 year loan costs a little more than a third higher a month but you end up in debt for only 15 years, not 30 and also you lose alot less money due to interest! If you cant afford, buy 74% as much housing so $148k instead of $200k.


$148k house, 10% downpay 15 year loan at 6.2%(yes its cheaper)
$1,138 a month times 180=$204840


This means a 15 year loan on a 148k house will cost exactly half
as much as a 30 year loan on a 200k house!


I hope this morgage math has helped some of you make a good financial decision and not buy more house than you can afford or get stuck paying way too much.

[Muggy]

N-a-h, seriously, you need to calm down. The good news is that you are asking questions. The bad news is that you've got them out of order. You should not make a home purchase until you run out of "revelations."

I can see your next post, "I get it! People don't take out 15 year loans because maybe they have other expenses!!"

Just lookin' out for you.

[Need_affordable_home]

I am not talking about me, this applies for everyone. It was general helpful advice. Not everyone knows that a 15 year morgage is a far better deal, now they do!

[Muggy]

Originally Posted by Need_affordable_home

Not everyone knows that a 15 year morgage is a far better deal, now they do!

People that do not understand loans should not apply for them. Add to your list:

1. Paying cash actually means no mortgage, which means no interest. This is the best deal (depending on your tax situation) as you are actually paying "X" dollars for the house.

2. Get a 30 yr. fixed with no pre-payment penalties. When you get the occasional "extra money (tax return, gift, bonus etc.)" apply that to the principal. Depending on your rate, making an extra mortgage payment each year can reduce your mortgage by as much as 7 years/thousands of dollars.

Due diligence, my friend.

[Need_affordable_home]

If you feel you can pay a 30 year morgage in 15 years, just take a 15 year morgage as the interest rate is a few tenths of a percent lower. Its far better to buy a bit less house and save hundreds of thousands of dollars! I have shown you that buying a $148k house instead of a $200k house can save you over $200k in the long run!

Thanks for reading and I hope this helps!

[mystree]

2. Get a 30 yr. fixed with no pre-payment penalties. When you get the occasional "extra money (tax return, gift, bonus etc.)" apply that to the principal. Depending on your rate, making an extra mortgage payment each year can reduce your mortgage by as much as 7 years/thousands of dollars.

I haved a fixed 30 no penalty loan,it is a simple interest loan in which I make more than the minimum payment and also pay every 28 days since I get paid
every 2 weeks. The last receipt I received said my next payment is due May
2007,but of course I will pay my next payment on Oct. 10 .

We also do the same thing with our car payment. You save alot of interest
paying this way.

[Check123]

Instead of putting down 10%, how about putting down 20% or even 30%. Then you can do whatever you want.

If you only have enough for 10% down, then you shouldn't be buying a house.

Get 'er done.

[christina0001]

I would love to feel secure enough to take out a 15 year mortgage, but when the times comes, we will take out a traditional 30 year mortgage, and just pay extra every month. I'd rather have the required monthly payment as low as possible in case $hit happens...because it always does. We did the same with our student loans...we could afford to be on a 10 year payment plan but we did the 30 year so we'd get lower payments, but we pay what we would have paid on the 10 year plan every month anyway. All it costs is self-discipline. Regarding your mortgage example, lowering the interest by 0.3% would be nice, but I'd still rather have a lower required payment.

People who are more financially savvy than I would tell you to take the mortgage with higher interest rate, and then take the extra $400/month you want to pay and instead invest it somewhere where you will earn more than 0.3% interest (which is easy).

[Need_affordable_home]

That could work, but if you save the extra $400 a month, youd need 30 years to pay the morgage, not 15. Do you feel you will be better off with a 30 year morgage and investing? A 30 year morgage will end up costing you $409680 for a 200k house. With a 15 year on a 200k house, you can own the house free and clear 15 years later and $276840 later. My math tells me by saving $400 a month, you have $4800 a year. If you put in $4800 each year into funds that appreciate at 6.5% a year, youll have $441548 worth of funds at the end of 30 years. You will have spent $409680 after 30 years on a 200k house. The amount you have in funds would be more than what you spent on a house and you also own the house free and clear!

Yea a 30 year morgage could be better if you have discipline and save your dollars into the right funds instead of spending it! Many people with an extra $400, they spend it on liabilities or things they dont really need instead of saving and investing it!

So you do have a point, it takes discipline

[MoMark]

I like your spirit Needaffordablehome...your heart is in the right place!! But I agree with Muggy as it's more rational to take a 30 yr. fixed with no prepayment penalties. You can always make extra payments toward the principle, and the payment coupon book has a slot for you to write that amount in, then add to your required house payment, total it up, then send it in. If you're disciplined, you'll get the same result, but...you've covered your back in case of unexpected expenses. So yes, it is a bit cheaper interest-wise to get the mortgage at 15 over 30 fixed, but the 30 yr. with no pre-payment gives you the flexibility if you suddenly find you need it. I had a 30 yr. fixed on my house before this one with no pre-payment penalties and I paid off all my debts (credit card, car), and then started paying extra as I could against the principle. I worked on a set salary, but I aslo got bonuses if we did well over projections. Sometimes upt to $3-5,000 a month. I put any bonuses against the principle after my credit cards and truck were paid off. When I sold my home last June, I had nearly $300K freed up as my mortgage had been paid down so far. I was able to buy a nicer home on acreage where I am now for cash. So yes, it's best to pay as much as possible and a 15 yr.fixed is great for saving money in the long term, but you can do the same thing on a no-pre payment penalty 30 yr. fixed, yet keep a window open for emergencies. It's a question of discipline I think. (ps. the "experts" who tell people to take out an adjustable rate mortgage, or interest-only ARMs so that they can invest their cash "elsewhere" to make more interest are full of ...can't say it in polite company..). The poor suckers who listened to that line remember the stock market crash of 2000, or, are now watching their homes go into foreclosure as the interest adjusts beyond their capability to pay as the value of their homes fall below the mortgages owed making them unsaleable. Just mho.)