Homeowner Financial Benefits
July 22, 2018

When most people go to a mortgage lender, especially for their first home loan, they tend to look at the 30-year payment option first. This is by far the most popular loan type, offering borrowers a long payback term that’s generally favorable for most buyers.

At Primary Residential Mortgage in Lake Oswego, though, we have home loans with a variety of terms that might better suit your needs. One option that can benefit many borrowers is the 15-year term – let’s look at the basics here, and why this might be right for you.

Basics

Like many 30-year loan terms, a 15-year loan usually comes with a fixed interest rate. This means you keep the same mortgage rate throughout the entire 15-year term, regardless of how the market changes. While interest here can be more expensive than certain adjustable-rate options, you also eliminate the risk of a huge rate hike using that format.

In most 15-year mortgage situations, the first few years are spent mostly paying down interest. As you progress further into the loan, you’ll begin paying more and more of the principal amount back.

Advantages and Disadvantages

In most cases, the major benefit of the 15-year mortgage is the amount you pay over the full life of the loan. This is far less than a 30-year option, as less interest will have time to accumulate. The primary disadvantage, however, is that your monthly payments will be higher to allow you to pay the debt off sooner and with less interest.

Basic Example

Here’s a basic example using mid-2017 mortgage rates. Borrower A and Borrower B are both taking out a $200,000 mortgage, with Borrower A using a 30-year fixed rate option and borrower B using a 15-year fixed rate option. For the purposes of our comparison, both buyers plan to stay in their homes for the full loan term. Here’s how the math would end up:

  • Borrower A: Monthly payment of $947; total interest of $140,839 over 30 years; total final cost of $340,839
  • Borrower B: Monthly payment of $1,399; total interest of $51,738 over 15 years; total final cost of $251,738

For more on why a 15-year mortgage term might be right for you, or to learn about any of our home loan services, speak to the pros at Primary Residential Mortgage today.

*The views and opinions expressed are my own and do not necessarily represent the official policy or position of Primary Residential Mortgage, Inc.