Fix Your Finances 2.0: 15-year vs. 30-year mortgage
INDIANAPOLIS, Ind.- What’s the main difference between a 15-year mortgage and 30-year mortgage?
Financial experts say it’s potentially thousands of dollars in savings!
“A $250,000 30 year mortgage will cost you over $100,000 more on the life of a loan than a 15 year mortgage,” said Peter Dunn a local financial planner.
The downside of a 15-year mortgage is that your monthly payment is significantly higher than if you were paying the loan back over 30 years.
Here’s how it breaks down:
30-Year Mortgage Estimate
Loan Amount: $200K
Interest Rate: 4%
Monthly Payment: $954
15-Year Mortgage Estimate
Loan Amount: $200,000
Interest Rate: 3.25%
Monthly Payment: $1,405
If you don’t plan on staying in a house you’re buying for more than five years, a 15-year mortgage may be your best bet.
“If you can’t afford the 15 year mortgage for that same house, I would argue you can’t actually afford that house,” said Dunn.
The shorter pay back also means you build equity quicker.
On a 30-year mortgage the majority of your payments the first year go towards interest.
“So essentially, you’re renting from the bank,” said Dunn.