15 vs 30 year mortgage

[vitamin]

Does it matter, setting interest rate aside, if a person gets a

1. 15 year mortgage or
2. gets a 30 year mortgage and pays extra in principal monthly to have the loan paid on in 15 years

Ultimately, if the rate was the same and the borrower pay extra on principal monthly leading to paying off the loan in 15 years, is there a difference in the total paid? Any advantage to a 15 year loan?

Thanks,

[Jluke]

30 year gives you flexibility since it has a lower payment amount compared to the 15-year.

15-year gets it paid off quicker if that is your ultimate goal.

If you are maxing your retirement accounts already and can still afford the 15-year, go with the 15 year.

otherwise pick the 30-year, or a 20-year.

I've done them all (30 to 15 to 10, paid off; recently moved and took a 30 that I am paying as a 20 year).

[rennigade]

Does it matter, setting interest rate aside, if a person gets a

1. 15 year mortgage or
2. gets a 30 year mortgage and pays extra in principal monthly to have the loan paid on in 15 years

Ultimately, if the rate was the same and the borrower pay extra on principal monthly leading to paying off the loan in 15 years, is there a difference in the total paid? Any advantage to a 15 year loan?

Thanks,

The interest rate is the only thing that matters between a 30 year vs 15 year. Typically a 15 year is less interest you have to eat.

If you're not sure start with a 30 year loan and pay extra on principal. Then in a couple years you can always refinance to 15 year if need be or to lower rate.

[Fishindude77]

The nice thing about the shorter term loan is that it forces you to pay it off quicker and get out of that debt. The idea of paying extra on the longer term loan is accurate, however I'll bet most people are not disciplined enough to make that extra payment month in & month out, paying the 30 year loan off in 15 years. End result being a longer term mortgage and more interest paid to the bank.

[JoeP]

The nice thing about the shorter term loan is that it forces you to pay it off quicker and get out of that debt. The idea of paying extra on the longer term loan is accurate, however I'll bet most people are not disciplined enough to make that extra payment month in & month out, paying the 30 year loan off in 15 years. End result being a longer term mortgage and more interest paid to the bank.

We refinanced to a 15 year, and it worked out for the reasons you state. It is easy to look at the 30 year and find ways to spend the extra money.

But the 15 year can also give people an excuse to accumulate CC debt, because they want something now and the budget is tighter with a higher monthly. But if you don't cave into that, it can provide a 15 year lesson of learning to budget with a little less.

[Gailete]

If you plan on paying it off in 15 years, then go for the 15-year rate. It is too easy when it is time to pay the 30-year mortgage to think Oh yeah, Christmas is next week, and we haven't bought the kids toys yet, so we can skip paying the extra 'this' time. And then April 15 rolls around and you need that little bit extra for the taxman, and soon in 30 years, you find yourself scratching your head wondering why you don't quite have your mortgage paid off yet.

To me, one of the greatest things about on-line banking, especially if your bank holds your mortgage, is seeing in 'black and white' the differences in the principle and interest paid depending on when in the monthly cycle you make a payment and remember than one month has 28/29 days, and others have 30 instead of 31. It all makes a difference. But seeing those numbers and seeing that I don't worry about my mortgage payment due date. I'm not sure when the due date is, if I pay it the day I get my SSD check deposited, I am ahead of time. Usually have been putting extra on it for the last year. Seeing those numbers all helped me to get our rental property paid off 6 months early. Am hoping to get the mortgage paid off early as well.

[Jluke]

To me, one of the greatest things about on-line banking, especially if your bank holds your mortgage, is seeing in 'black and white' the differences in the principle and interest paid depending on when in the monthly cycle you make a payment and remember than one month has 28/29 days, and others have 30 instead of 31. It all makes a difference

My mortgage interest doesn’t work that way and I have seen you mention this before. So I looked it up because I was curious.

What you are describing is a simple interest mortgage where interest does accumulate daily. Even a leap year counts for another day of interest. This is how my auto loans work so I make that payment ASAP for the same reason you do on your mortgage.

I have a fixed/standard mortgage (I think that is a good way to describe it) so the interest each month is determined based on a month at a time. It doesn’t matter how many days are in the month and it doesn’t matter when I make the payment.

Here is the link where I learned about the difference between the two mortgage types.

https://www.mtgprofessor.com/a%20-%20amortization/how_does_simple_interest_work.htm

[Gailete]

You know what, you are right. I always think of it as our 'mortgage' but I think the bank looks at it as a Home Equity Loan of some type. As we had to refinance the loan for several reasons and at that point the house itself was worth about $250K so we got an $80K to pay for the final construction of it. For years of buying homes it was always a 'mortgage' that is what I think of it as, so yes mine fluctuates. But even a regular mortgages, paying sooner does help chip away at the loan.

Probably 35 years or so ago, My ex and I bought a 2 flat building. I wanted to get it paid off ASAP, so every month I was having to manually calculate the numbers to see where we stood with it - and hoping I was right! With him wanting the divorce, he also wanted our house and the rental property, so he had to refinance it to have it in his name so I never got to see the reality of those extra payments I was making. So, paying off the loans this past week for the rental current hubby and I have, was actually fun to be able to calculate it and see how much faster the loan was disappearing and to figure when it would be paid off. Unfortunately, the added extra payments THIS past year, if I had made them 15 years ago, would have made a lot bigger difference I think, because it would have paid off a lot more of the principle. But yet again, It was hard to see that until about 2 years ago when my bank started showing all accounts on line and the effects of extra payments.

[Smallsteps]

In my opinion People get too hung up about length of loan. As long as there is not a prepayment penalty and a person is dedicated ( many think they are but really drop the ball) , they can turn a 30 year to a 15 or shorten any kind of loan.
Some people will only pay what is expected and so they should go with the shortest term with the biggest payment that they can afford.
The trick is to know yourself and what you will stick to. I have always rounded up or paid as much extra as I could on every loan. I have tried to instill that into my kids but at least one talks like he is on board but then makes the minimum.

[greenskeeper]

I've always taken the 30 yr and aggressively paid it down, current house is a 30 on pace for 12 year payoff

lower payment (albeit higher interest rate) gives flexibility in case of financial stress

[MooseBucks]

Interest rate being equal I'd take the 30 year over 15 yr. Gives you flexibility if you lose job/etc to pay less.

[dczech09]

I ran a quick test using today's interest rates: 4.28% for a 30 year and 3.73% for a 15 year.

If you were to pay off the 30 year like it were a 15 year mortgage, your payment would be $1,507.60 per month and you would pay $71,366.81 in interest over the life of the loan.

If you were to pay off the 15 year as normal, your payment would be $1,452.46 per month and you would pay $61,443.10 in interest.

By going with the 15 year mortgage, you save $55.14 per month, $9,923.71 in interest, and you WILL pay off the loan in 15 years (so you save yourself a lot of time).

Basically it is a matter of personal preference. Is the higher interest rate and higher interest amount worth the added flexibility that comes with the 30 year mortgage? There is no right or wrong answer. It just comes down to what you value more: the money or the flexibility.

[greenskeeper]

I ran a quick test using today's interest rates: 4.28% for a 30 year and 3.73% for a 15 year.

If you were to pay off the 30 year like it were a 15 year mortgage, your payment would be $1,507.60 per month and you would pay $71,366.81 in interest over the life of the loan.

If you were to pay off the 15 year as normal, your payment would be $1,452.46 per month and you would pay $61,443.10 in interest.

By going with the 15 year mortgage, you save $55.14 per month, $9,923.71 in interest, and you WILL pay off the loan in 15 years (so you save yourself a lot of time).

Basically it is a matter of personal preference. Is the higher interest rate and higher interest amount worth the added flexibility that comes with the 30 year mortgage? There is no right or wrong answer. It just comes down to what you value more: the money or the flexibility.

What was the starting balance of the loan ?