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30 Year Mortgage or 15 Year Mortage

Budgeting image with calculator and pen

The attractiveness of a lesser monthly payment may seem alluring at first, but soon the math will show a 15 year mortgage is the way to go.  Several sites give advice that a home should never be above a certain percentage of your income.  My personal favorite advice is to be no more than 25% of your income with taxes and insurance.  This gives plenty of room in case life throws a Murphy moment our way.

Let’s take a look at a 30 year mortage example:

Home Price:  $200,000
Term of the loan:  30 years
Interest Rate (varies from day to day):  4.0%
Tax Rate:  1.5% (estimate)

Your payment would be  approximately $1,204.83 not including insurance costs in your local area.

This means you would have paid $334,239.01 for a home over the course of 30 years.  Just the interest payment was $134,239.01!

Next let’s look at the same loan over a 15 year term:

Home Price:  $200,000
Term of the loan:  15 years
Interest Rate (varies from day to day):  3.2%
Tax Rate:  1.5% (estimate)

Your payment would be  approximately $1,650.48 not including insurance costs in the local area.

This means you would have paid $248,503.50 for a home over the course of 30 years.  The interest payment in this example was $48,503.50.

Just by taking on a little higher payment a savings of  $85,735.51 can be realized.  Do you have some things this money could help with?  Imagine that same money making 8-10% in growth stock mutual funds or being able to use that money towards a real estate investment (or even some family fun)!

If a 15 year mortgage is out of the budget, maybe more needs to be saved for the down payment or less of a house should be purchased.  Don’t let your money walk out the door without a good reason!

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