You Can Fund Your Retirement With A 15-Year Loan

November 06, 2020 by Dan Green

Using a 15-year mortgage is one of the best ways to save money in homeownership.

There are two reasons why 15-year loans reduce cost.

First, homeowners with 15-year fixed-rate loans get access to lower mortgage interest rates as compared to borrowers with 30-year fixed-rate loans. 15-year mortgages are less risky to mortgage lenders, which means lenders can offer them at lower rates.

Second, 15-year mortgages are paid off in half the time as compared to 30-year loans, which means that homeowners pay mortgage interest for half the number of year.

At today’s mortgage rates, a home buyer that opts for a 15-year fixed-rate mortgage will pay 47 percent less mortgage interest over the life of its loan.

In dollar terms, this is a reduction of $120,000 paid for every two-hundred fifty-thousand borrowed. Money like that can be used to pay for college, fund a retirement, or buy an investment property, among other options.

Despite the savings, though, according to Freddie Mac, only six percent of home buyers opt for 15-year financing. By contrast, 90 percent of buyers use the 30-year fixed-rate loan.

Partially, this is because 15-year fixed-rate loans compress the payback period of a loan into half as many years, which results in larger payments. These larger payments can challenge a homeowner’s budget and many prefer the smaller monthly obligation of a 30-year loan — even if that loan comes with a larger long-term expense.

15-year fixed rate mortgages aren’t for everyone, but when you can manage the payments in your budget, it’s worth consideration.

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