Which Mortgage Term is Best?

When you opt for a career with the federal government you may end up with a 20 year or 25 year career. With that in mind let’s talk about mortgages.  Instead of doing the normal thing and getting a 30 year mortgage, try looking at a 15 or even a 20 year mortgage if you think you will have problems affording the payments on a 15 year. Besides saving a ton of money on interest over the years, think about how great it will be to enter into retirement without a mortgage payment. At the time that I am writing this article mortgage rates range from 3.375% for a 15 year to 4.0% for a 30 year.

Based on Conventional Loan of $200,000:

Years	Interest Rates	Monthly payment	Total payment	Total interest	Annual payment
15 YR	3.375%	$1,417.52	$255,153.60	$55,153.60	$17,010.24
20 YR	3.75%	$1,185.78	$284,587.20	$84,587.20	$14,229.36
30 YR	4.0%	$954.83	$343,738.80	$143,738.80	$11,457.96

As you can see from the chart above, there is a savings of $88,585.20 between a 15 year and 30 year mortgage. Yes, I understand you will be paying an extra $463 in order to do a 15 years mortgage. But, you can’t ignore the amount of money you will save. If you stick with a 30 year mortgage you will end up paying almost double for the house even with a low 4.0% interest rate.

Let’s face it many of us can’t afford the payment on a 15 year mortgage so let’s look at the savings you can expect by choosing a 20 year mortgage over a 30 year. That is a difference of $232 in monthly payments and a savings of $59,151.60 over the life of your loan.  Plus, think of what you can do with the $59,000 in interest you save. I know what you are thinking, “Ms. Smart that savings isn’t actually in my hands.” But, it can be. Let’s say you are on a 25 year career path and you just paid off your house in 20 years. You can continue saving just $984 a month, which is still $200 short of what you were paying in mortgage and at the end of 5 years you will have $59,040 saved. That money is now in your pocket and not in the pocket of the bank.  So you choose which mortgage term is best for you in conjunction with your career path.

Even if you have already purchased a home try looking at refinancing to lower your term. There are many options, even a 10 year mortgage term if you have been in your home for some years already.

Ms. Smart