If you are dedicated to managing your money wisely -- not from the month to month standpoint, but an overall view -- you should consider taking a 15-year mortgage. A 15-year mortgage comes with a lot of advantages. You can own your home free and clear before you retire. You can save a lot of money in interest -- hundreds of thousands in many cases. If you are thinking that a 15-year mortgage must cost a lot more than a 30-year mortgage, consider the following: If you were to take out a 30-year mortgage at 8% interest, your monthly payment for principal and interest would be $734 a month. Over the life of the mortgage, you will pay back $164,165 in interest. That same $100,000 at 7.5% interest will cost you $927 each month in principal and interest. You will pay back $66,862 in interest over the life of the mortgage. For only $193 extra a month, you can save $97,293 in interest. That's a lot of money that isn't going to the lender. It all stays with you. Plus, you own your home in half the time. There are some arguments made for taking out the 30-year and putting the difference in savings. It doesn't always work out the way you plan. If you were to save the $193 each month and never miss a month in a 4% average yield account, you would have $47,495. It's less than half you would save with the 15-year mortgage. And you have to be really dedicated to put that amount into your savings without fail. The truth is that most people are really awful about saving money. Chances are that you wouldn't really be disciplined enough to put that money in savings. I'm sure that there are other places you would spend it. If you have the extra money, you should consider the 15-year mortgage. You are building equity in your property much faster. You are getting debt out of the way before retirement. There are cases in which taking the lower monthly payment may be more beneficial. For example, people who are certain they will move in a couple of years are often better off taking out the lowest monthly payment mortgage they can, especially in areas where home values are on the rise. There are a lot of people out there looking to stretch into the largest or most expensive home they can possible afford. If you want to stretch, the 30-year, fixed-rate mortgage is certainly your best choice. But you should really consider the properties in your price range for a 15-year mortgage. Even if you are going to sell the home in a decade, when you sell it, you will have more equity in the home to get back. Your payments have been working for you, not against you. There are also those that take out the 30-year -- just in case -- and pay it off like a 15-year. There is nothing wrong with this. Just make sure that your mortgage doesn't come with prepayment penalties. You will just have to be certain that you are disciplined enough to make the extra payments. That's the only way you will save. Most people consider their homes their largest investment. It doesn't have to cost you so much. Getting rid of your debt is the grandest step you will take to living free. A mortgage isn't something you should stretch to its breaking point. The 15-year mortgage is a wise decision for the home owner with an eye towards the future. |
