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A 15-year Fixed Rate Mortgage follows the same principle of the 30-year Fixed Rate Mortgage. It carries a predetermined interest rate for the life of the loan and payments remain fluid throughout as well. It differs, mathematically, in the sense that the overall interest expense is significantly less and the loan matures in half the amount of time. |
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Consider a $400,000 mortgage at 8% interest for a 30 year period. A simple calculation shows that the interest payment for the life of the loan would be $960,000. The same $400,000 at 7.5% (15 year mortgages save .5% to 1% in interest charges) over 15 years would accrue $450,000 in interest. That's overall savings of $510,000 in interest payments (53% less than the 30-year term). |
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Another important facet to consider between the 15 and 30-year mortgages is the payment amount. Naturally, a 15-year mortgage will have a higher payment amount. The $400,000 mortgage at 30 years will have a payment of roughly $2,935. The 15-year mortgage on the other hand will have a payment of $3,708. The 15-year mortgage has a monthly payment that is 21% higher than that of the 30-year. However, there was a 53% overall savings on interest and the mortgage matured in half the time! It's apparent that the 15-year mortgage saves a significant amount of money over time but it's up to you to decide how much of a monthly payment you can afford on your home. |
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