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Monday, July 29, 2013

Advantages of the 15-year fixed mortgage

A standard mortgage loan term is a 30-year fixed loan however with recent changes in the market and the rise in interest rates, a 15 year-fixed also has it's advantages.  The obvious, a shorter loan term.  But that's not the only reason why this loan program is becoming increasingly popular among home buyers.

I spoke to one of RANLife's senior loan officers, Wendy Nance, who gave me her take on the advantages of a 15-year fixed mortgage.  Wendy is one of RANLife's most experienced loan officers and aided thousands of home buyers through the home loan process.  Here is what she had to say:

1. Peace of mind

"I can't stress enough how good it feels to pay off your mortgage before you hit retirement," said Wendy.  She herself has always had a 15 year-fixed mortgage because at the end of the day, she feels good knowing that she will have more money in the future after that mortgage is paid off, at a time when she really needs.

"Who wouldn't want to be free'd up out of debt faster?"  We all strive to see the day there are no more car payments, student loan payments, and even a mortgage payment.  With a 15-year fixed mortgage, you can get there faster.

2. Lower loan costs

In most cases with a 15-year fixed mortgage you qualify for a lower interest rate, resulting in a lower monthly payment.  The savings in interest rate between a 15 and 30-year fixed loan might be as little as 1/5th of a percent, but that savings could still make a difference from $30 to $75 a month in interest, depending on your rate.  Savings over a year would be almost $1000.  Times that number by 15 years and that is a lot of savings already.

3. Life of the loan savings

One of the biggest and most obvious reasons why a 15-year fixed mortgage is better than a 30-year fixed mortgage is the savings over of the life of the loan.  Take a look at this example from Wendy:

On a standard $200,000 loan, 30-year fixed, the borrower would end up paying almost $185,000 in mortgage interest.  "These borrowers on average end paying almost double the original loan amount just to get it paid off.

On a standard $200,000 loan, 15-year fixed, the borrower would end up paying about $65,000 in mortgage interest.  This is almost a $120,000 savings by just shortening the loan term.

"You will end up saving lots of money and also have better clarity knowing that your mortgage will be paid off before you reach retirement."  Every loan program will have it's pros and cons, but in the long run, a 15-year fixed mortgage is never a bad idea.


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