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Thread summary:

Couple seeking advice on 15 year fixed mortgage or 30 year fixed mortgage, 80k 30 year fixed 6.0%, 80k 15 year fixed 5.56% interest

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Old 06-07-2008, 04:36 PM
 
Location: Memphis, TN
185 posts, read 965,830 times
Reputation: 110

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--> Here's the calculator you want to be using: 15-year vs. 30-year mortgage calculator <--

And now for my explanation of what is the better choice:
$200k loan on 30 year at 5.72%:
Mortgage calculator: Bankrate.com

17.8% of your monthly payment is applied to principal on 1st payment.
24% of your monthly payment is applied to principal on year 5.
31.6% of your monthly payment is applied to principal on year 10.

$200k loan on 15 year at 5.29%:
Mortgage calculator: Bankrate.com

45% of your monthly payment is applied to principal on 1st payment.
60% of your monthly payment is applied to principal on year 5.
80% of your monthly payment is applied to principal on year 10.

You should analyze the amortization tables of a 30 yr vs. 15 year before making a decision. Realize that on a 30 year, the amortization is stacked heavily in the lender’s favor. Unless you add extra payments to principal, you will be on a painfully expensive 30 year amortization which applies most of your payment to interest until you are 19 years into the loan! Only by the 19th year will 50% of your monthly payment finally be applied to principal. However, on a 15 year amortization, 50% of your monthly payment will be applied to principal by the 2nd year.

Now even if in you increase your monthly payment to match what a 15 year monthly payment would have been, you will still pay thousands more in interest because of the dreadfully expensive 30 year amortization.

Keep in mind that your interest rate determines the ratio of interest and principal. An interest rate of 4.62% on a 15 year amortization will automatically start you out at > 50% of your monthly payment being applied to principal (1st payment). Conversely, a 30 year at 7.5% will start you out at only 10% of your monthly payment applied to principal.

In short, a 15 year is better for the mortgagor and a 30 year is preferred for the mortgagee. If you can afford the monthly payment on a 15 year term then the choice is obvious.

Sadly, rates on 10 year mortgages are actually higher than a 15 year term (as banks want to discourage borrowers from taking "low profit / low interest" 10 year loans).
10-year fixed mortgage rates in the United States Friday
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Old 06-07-2008, 09:25 PM
 
Location: AL for now
360 posts, read 1,530,569 times
Reputation: 454
Default clarifying my response

When we bought the house, interest rates were over 8%. We were newlyweds and 1st time homebuyers, and our incomes weren't that high (and neither was our down payment). We took out a VA loan. I don't think it occurred to us to try to qualify for a 15-year loan... the PITI with the 30-year loan was pretty high already!

I think the key was that after a couple of years, interest rates came down and we refinanced to a much lower rate. We decided to keep paying the same amount every month as before the refi (with the extra $$ going to principal reduction), as we knew we were handling it OK, and our incomes had gone up. Over time, we kept increasing our monthly payment as finances allowed. I agree with your husband that the 30 year loan gives you more flexibility, but you pay more in the end as the original responder explained. Hope that helps.
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