Debt and Credit Help » Financial Management » Mortgage Free In 15 Years!
Mortgage Free In 15 Years!
by Tom Levine
Imagine paying your mortgage off in 15 years! Think of all
the great things you could do with that extra money. What
would you do? Retire early? Buy an R.V.? Travel around
the world? If you could eliminate your mortgage in half the
time, then your options would be wide open.
Let’s take a look at 3 benefits and 3 considerations when
evaluating whether or not the 15 year fixed rate mortgage,
is right for you:
1. Lower Interest Rate
2. Huge Savings on Interest Paid
3. Mortgage Paid in 15 Years
4. Affordability
5. Expendable Income
6. The 15 Year Loan as an Investment
1. Lower Interest Rate:
The 15 year amortized fixed rate loan carries a lower
interest rate.
The interest rate is usually about ½ % the rate of a 30 year
term.
For example, as of today’s date, the average 30 year fixed
is going for about 5.67%, while the average 15 year fixed is
going for about 5.10%.
That’s a savings of .57%!
2. Huge savings on Interest Paid:
Do you want to save a ton of money? A 15 year fixed will
accomplish this for you.
Let’s look at a $300,000 loan. Over the course of 30 years,
at 6% interest, you will pay the bank $347,514 in interest.
(Yes that’s right. You’re paying the bank 115% of the loan
value, over the course of 30 years).
However, with a 15 year fixed rate loan, at 5.5%, you will
only pay $141,225 in interest (Wholly smoke! That’s a
savings of $206,289!).
What would YOU do with $206,289?
3. Mortgage Paid in 15 years:
Because the loan is amortized for 15 years, instead of 30
years, your commitment to the bank is cut in half.
This is an enormous advantage. After 15 years, money
normally applied to a house payment can be applied to
investments.
Or, you can begin considering alternative careers,
retirement, or home improvements.
Or you can just spend that extra money on fun stuff and
goodies.
Any way you look at it, cutting your commitment down to 15
years affords you many more options in life.
So we’ve established that a 15 year loan clearly has some
amazing benefits. But, is the 15 year loan right for you?
Let’s take a look at some important considerations:
4. Affordability:
Even though the 15 year fixed rate loan enjoys a ½% savings
in interest, there is still the question of affordability.
For example, a $300,000 mortgage, amortized over 30 years at
6%, equates to a monthly house payment of $1798.
But the same loan amortized over 15 years at 5.5%, equates
to a monthly house payment of $2,451.
That’s an extra $653 per month, or a payment that’s 36%
higher than a 30 year fixed.
Can you afford the long-term commitment of a 15 year fixed
rate loan?
5. Expendable Income
The 15 year fixed rate loan is an important consideration if
you have extra income and you are looking to apply it
somewhere. Ask these important questions:
Are all your bills getting paid?
Do you have low debt?
Are you spending too much each month on luxuries?
Are you spending too little each month on productive
investments and savings?
If money’s got you down, and things are tight, and if there
are other financial areas for you to explore first (such as
paying off credit cards), then perhaps the 15 year loan may
not be right for you, at least not right now.
Start by completing a budget analysis, and figure out a plan
to get you from point A to point B.
6. The 15 Year Loan As An Investment:
This is really, the most important consideration. A 15 year
fixed rate loan is more of an investment then anything else.
The financial benefits of a 15 year fixed rate RIVALS the
benefits of a 401k, Roth IRA, and Mutual Fund performance.
You need to compare the money saved (in our example, that’s
$206,289) to the performance of your other investments in
your portfolio. Remember to calculate in the extra money
you are paying for the 15 year loan (in our example, that’s
$653 per month), so that you can determine a net profit.
If you are exploring ways to build wealth, and apply your
money in a productive way, then you need to seriously sit
down, and figure out how to get a 15 year loan incorporated
into your plan.
Remember, money saved, is money earned!
We’ve enjoyed providing this information to you, and we wish
you the best of luck in your pursuits. Remember to always
seek out good advice from those you trust, and never turn
your back on your own common sense.
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Copyright 2004, by
Tom Levine provides a solid, common sense approach to
solving problems and answering questions relating to
consumer loan products. His website seeks to provide free
online resources for the consumer, including rate-watch,
tips and articles, financial communication, news, and links
to products and services. You can check out Tom’s website
here:
, or you can email Tom at
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Filed under: Financial Management