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“One Man’s Opinion”
By: Don Calamaro
While the stock market hasn’t been that good to us over the last few years, interest rates on loans have! One of the best ways to make up for your losses in the market is to take advantage of these low rates and refinance to a 15 year mortgage. In my opinion, the 15 year mortgage is one of the best “investments” you will ever make. Why do I call it an “investment”? Because your mortgage payment will be larger than it would be with a 30 year note, and the “difference” in payment is an investment in your future financial freedom.
There are 4 great reasons to consider a 15 year mortgage:
1. You Will Pay Significantly Less Interest on the Loan
Consider a mortgage loan of $150,000 at a rate of 6%.
On a 30 year note, the monthly payment (P+I) would be $899.33/month
On a 15 year note, the monthly payment (P+I) would be $1,265.79/month
Over 30 years, the borrower will make 360 payments, and pay a total of $323,757
Over 15 years, the borrower will make 180 payments, and pay a total of $227,842
So, with a 15 year mortgage, the borrower will save $95,915 in interest!
2. You Will Pay a Lower Interest Rate
Typically, a 15 year mortgage will have an interest rate that is ½ point less than a 30 year mortgage. This lower interest rate will help offset the higher payment of the 15 year mortgage.
3. You Will Build Equity Much Faster
Consider two men who purchased the same house right next door to each other, on the same day, for the same price. The first man (let’s call him Bob) takes out a mortgage for $150,000, 6%, for 30 years. The second man (let’s call him Steve), takes out a mortgage for $150,000, 6%, for 15 years. Bob has a payment of principal and interest of $899 per month. Steve, with the 15 year mortgage, has a payment of $1,266 per month. That’s $367 more per month! Steve has to stretch a little to make his payments in the first few years, but as his salary increases, the extra money he pays on the 15 year mortgage doesn’t seem so bad. Bob said that he will take the $367 less that he pays on his 30 year mortgage and invest it. Unfortunately, Bob isn’t disciplined enough to save the money, and finds little ways to spend it every month.
After 10 years, both men decide they want to sell their homes, and call for a mortgage payoff figure. Bob, with the 15 year mortgage is shocked that after 10 years, he still owes $125,528 dollars! Steve, on the other hand, owes only
$65,473. Steve has $60,055 more in cash when he sells his house than Bob!
4. You Will Be On Your Way to Financial Freedom
For most individuals, the primary residence is the largest investment, and consequently the largest payment they will ever make. And once a mortgage is paid in full, the homeowner has much greater freedom to make choices – for example, to leave a job that is not satisfying, pay a child’s college tuition more easily, or buy the vacation home that seemed out of reach.
Check your finances – If you can stretch and make the payment, you should strongly consider refinancing to a 15 year mortgage – You’ll be glad you did. And that’s just
One Man’s Opinion!
“One Man’s Opinion” is written by syndicated columnist Don Calamaro. Don holds an MBA from Temple University in Real Estate and Finance. His column delivers practical advice that will help you save money.
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