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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An insurance claim is an official request you make to an insurance company, asking to get paid for damages. Insurance claims can be made for any reason that’s a part of your insurance policy. When you have homeowners insurance, you can make an insurance claim after a fire in your home; after there’s been theft […]