Save Thousands of Dollars with a 15 Year Mortgage
Friday, January 29th, 2010Financial planning is often overlooked in the process of buying a home or refinancing. A typical plan is to get a home loan that extends payments as much as possible, delays the principal reduction, or uses a home like an ATM machine. Today, a financially practical approach is to consider a home as a long term place to live, while planning a time to pay off the mortgage.
When buying or refinancing a home, most people will take the path of low payment over a plan to eventually be mortgage free. The idea of owning a home free and clear of any mortgage may be a far off concept to many people, but it’s only a matter of time, 15 years, or maybe even less.
A 15 year fixed rate mortgage can provide a realistic goal of being mortgage free, while saving thousands of dollars on interest payments, instead of a 30 year mortgage. For example, on a $200,000 loan, a 15 year mortgage could save as much as $120,000 over the life of the loan when compared to a 30 year mortgage term.
There has been an ongoing debate about the pros and cons of paying off a mortgage. Behind the argument for not paying off your mortgage is the reasoning that you could invest the extra money and earn a higher return, while keeping your money more liquid. That may have been a good reason in the past, but the rate of return on investing is questionable, compared to the fact that every dollar paid to reduce a mortgage balance provides a guaranteed return equal to the interest rate on the mortgage.
Another debating point about keeping a mortgage has been the tax deduction benefit. In order to get an accurate picture of the tax benefit, compare the standard deduction allowed to itemized deductions with mortgage interest. If you paid $20,000 in mortgage interest for the year and received a $2,000 net tax write off, is that a good reason to prolong your mortgage?
What are the benefits of a 15 year mortgage?
- Provides a fixed term strategy to eliminate your monthly mortgage expense.
- Incorporates the retirement of your mortgage into your overall retirement plan.
- Long term investment that guarantees a rate of return by reducing your debt.
- A future with less financial stress and the security of really owning your home.
- Saving a large amount of interest expense on a 15 year term instead of 30 years.
The goal of living without a mortgage payment is attainable. If you can afford a 15 year mortgage, you set a timetable to one day enjoy the benefits owning your home free and clear. You also have the option of shaving a few years off the term by paying a little extra towards the principal balance each month. By the way, 15 year mortgage rates are usually lower than 30 year rates.
Mortgage refinance, home equity loans, and San Diego new homes
