Hello peteretep,
And thank you for your question.
Personally, I think its an excellent idea, though everyone's
individual financial situation is a bit different. Assuming that the
increase in monthly payment is not an obstacle for you and the tax
deduction from the interest is not a benefit that outweighs the
interest savings, you might save as much as half or more of the
interest with a 15 vs. 30 year mortgage.
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Insert disclaimer here: I am not an accountant or lawyer nor do I play
one on the web. I am but a Google Researcher and the opinions
presented here are either my own personally or the opinions of the web
sites and authors I have quoted. In no way should this information be
treated as a substitute for the opinions of true professionals in this
field.
***************************************************************
That being said, let's look for some examples:
I searched for - compare 15 and 30 year mortgage - and found
http://www.shearsonmortgage.com/calculators/MortgageCompare.asp , a
page with a 15 and 30 year mortgage comparison tool. For the sake of
argument, I used a mortgage of $350,000, whic is in the range of what
is known as a jumbo loan and starts at $307,000.
This tool required me to insert information such as the interest rate
I wished to use for each of the loans I was comparing. I went over to
ditech.com and used their published rates for today's 30 year mortgage
with 0 points which was 6.50 %. I then checked their 15 year mortgage,
0 points and found that to be 6 %. The other number that is pertinent
to the calculation is the marginal tax rate of the borrower, which is
the combined total percentage of income that goes to state and federal
income tax. For the sake of this exercise, I left the number at the
default 28%.
The numbers are both interesting and dramatic.
Mortgage amount 350,000 15 year 30 year
Interest rate 6.0% 6.5%
Monthly payment 2,953.50 2,212,24
Total payments 531,630.00 796,404.00
Total Interest 181,630.00 446,404.00
Interest savings for a 15 year mortgage: $264,774 !
The following table shows possible tax savings for each of these
loans:
Interest and Income Tax Comparison
15 year mortgage 30 year mortgage
First months interest $1,750.00 $1,895.83
First months principal $1,203.50 $316.41
First years interest $20,596 $22,635
First years tax savings $5,767 $6,338
Avg. years tax savings $3,390 $4,166
So, you will notice that the 30 year mortgage not only has a lower
monthly payment but also offers small tax savings.
Once again, a tax professional can help you decide just which is a
better plan after taking ALL of your financial situations into
account. Even this web site offers the following disclaimer:
"Information and interactive calculators are made available to you as
self-help tools for your independent use. We cannot and do not
guarantee their accuracy or their applicability to your circumstances.
We encourage you to seek personalized advice from qualified
professionals regarding all personal finance issues."
Do visit this page and plug in your numbers for an estimate of you
personal situation.
Mortgage-X has a very good description of 15 year mortgages at
http://mortgage-x.com/brochure/loans.htm . I'll clip excerpts of this
brochure for you:
"Save $100,000 on mortgage interest costs! Sound impossible? Not
really. An old-time mortgage that is once again proving popular allows
homebuyers to so just that. It is the 15-year fixed-rate mortgage that
lets homebuyers own their homes free and clear in 15 years. And, while
the monthly payments are somewhat higher than a 30-year loan, the
interest rate on the 15-year mortgage is usually a little lower, and
importantly - the homebuyer pays less than half the total interest
cost of the traditional 30-year mortgage...
Who It's For
The 15-year fixed rate mortgage has proved popular with two very
different groups of homebuyers. First, it enables young homebuyers
with sufficient income to meet the higher monthly payments to pay off
the house before their children start college. They own more of their
home faster with this kind of mortgage. Other homebuyers, who are more
established in their careers, have higher incomes and whose desire is
to own their homes before they retire, may also prefer this
mortgage...
Advantages
The 15-year fixed rate mortgage offers the qualified consumer five big
advantages.
You own your home in half the time it would take with a traditional
mortgage.
You save more than half the amount of interest of a 30-year mortgage.
On a $75,000 mortgage at 9.5 percent, you save more than $95,000.
Lenders usually offer this mortgage at a slightly lower interest rate
than with 30-year loans - typically 0.5 percent to 1.0 percent lower.
It is this lower interest rate added to the shorter loan life that
realizes the savings for 15-year fixed rate borrowers.
Fixed rate means exactly that - no matter where mortgage interest
rates go, the payments for this mortgage stay the same from the first
to the last. This helps many borrowers plan their budgets with more
certainty. They know that their monthly payments will not increase (or
decrease) and throw their financial planning off.
15-year mortgages can be insured by the Federal Housing Administration
(FHA) and the Veterans Administration (VA), and with private mortgage
insurance.
Disadvantages
The disadvantages associated with a 15-year rate mortgage are really
the qualifiers that will tell consumers if this is the mortgage for
them.
The monthly payments for this type of loan are higher than those for a
30-year mortgage, roughly 10 percent to 15 percent higher per month.
Because borrowers pay less total interest on the 15-year fixed rate
mortgage, they lose the maximum mortgage interest tax deduction. "
I trust this has answered you question. If anything above is unclear,
please do ask for clarification.
Best regards,
-=clouseau-ga=- |
