Do the math, and the 15-year mortgage emerges as a powerful tool for saving money. But it's not for everybody.
Recently, our friends at the Motley Fool made a bold declaration: A 15-year mortgage is the “perfect term” for those in need of a home loan. As Dan Caplinger writes:
By going beyond the typical 30-year mortgage and instead looking at the 15-year mortgage, you can put yourself in a much better financial position over time and keep more of your hard-earned money for yourself.
Among other reasons, Caplinger argued that the 15-year loan is best because borrowers save substantially on interest and build equity quickly.
We argued the value of 15-year mortgages in our recent story “7 Painless Ways to Pay Off Your Mortgage Years Earlier.”
In that story, Money Talks News reporter Marilyn Lewis ran some numbers and found that although the monthly payment on a 30-year, $200,000 loan was lower — $966, compared with $1,412 for a 15-year loan – overall interest payments were substantially higher on the longer loan term.
In fact, a 30-year loan would cost you $147,901 in interest over 30 years. By contrast, the 15-year loan would cost you just $54,187 in interest.
Lewis says that’s a powerful argument for choosing the 15-year loan:
You pay $446 more each month, but you’ll own the home in half the time and pay just $54,187 in interest — saving a whopping $93,714. That’s nearly $100,000 that stays in your pocket rather than going to a lender.
Is a 15-year mortgage loan right for you?
Before you rush out to refinance into a 15-year loan, understand that other factors might make it a bad choice for some borrowers.
As Lewis discovered, a 15-year mortgage requires you to pony up an extra $466 each month. Money Talks News founder Stacy Johnson points out that investing those dollars elsewhere might net you a bigger return than the amount you would save by paying down your mortgage more quickly.
Stacy — who is a certified public accountant — says that taxes can complicate calculations when trying to decide whether the 15-year option is the best financial move. You can read more about that in “Ask Stacy: What’s the Fastest Way to Pay Off My Mortgage?”
But in the end, he also argues that sometimes, peace of mind can trump basic math and make the 15-year loan a great option for many homeowners:
Debt isn’t all about the digits. There’s also the “ball and chain” effect. The additional peace of mind you achieve by becoming debt-free is priceless, especially when you consider that most homeowners spend nearly their entire adult lives in debt. So if casting off the shackles is your main motivation, well, math be damned. Just do it.
Still on the fence about a 15-year mortgage? Check out your options by comparing lenders in our Solutions Center. You can search for the best mortgage rate on our “Your Mortgage: The Rate That Changes Lives” web page.
What type of mortgage do you have? Are you happy with it? Sound off by commenting below or on our Facebook page.