Doubling Down on a Lifetime Investment?

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If you currently have a conventional 30-year mortgage on your home, it is easy to understand why. It is without a doubt the most popular and widely utilized home loan product — it’s the apple pie of the mortgage world. It’s safe, easy to calculate, and leaves you with little to think about from month-to-month.

But if the 30-year mortgage is the Man of the House, the 15-year loan is the popular little brother that is always tagging along. He’s the one a lot of people don’t like to talk about, due to the glaring elephant in the room — he can be expensive. With the 15, you'll definitely be paying more on a monthly basis, and right away.

But if you have the financial means to handle a larger monthly payment, you may find that little bro could save you a LOT of money in the long run.

How does that work, exactly? We’re glad you asked.

First let’s talk interest rates. Generally, shorter term loans bring lower interest rates. Believe it or not, your lender wants a lower year term — they’re taking on less risk across 15 years than they are at 30. It is exactly that decreased risk that often causes them to offer substantially reduced rates, to entice you to choose a product more to their liking.

Now let’s go back to that elephant — the big, scary monthly payment. Sure, your wallet will feel thinner each month, with the payments on average up to 45-50% higher than it would be spread over 30 years, depending on your unique purchase and financial situation. But you’ll save so much more in the long term, via both the lower interest rate, and also because you’ll pay more towards the principal each and every month.

In fact, did you know that you might actually pay almost double the total amount with a 30-year mortgage over what you would pay on the same mortgage with a 15-year term? That’s because you’re making an extra 15 years of interest payments.

Plus, there are fringe benefits! With a 15 year, you’ll build equity in your home twice as fast. Combine that shorter mortgage term with today’s higher home prices, and you could exponentially grow the amount of equity you have — which is especially nice if you’re looking to refinance down the road.

Last but not least — consider your age. What are your retirement plans? If you’re looking to retire within the next 15-20 years, you could drastically reduce the amount of pressure on your monthly budget come retirement with a shorter term loan. That means more money to travel, make improvements on your home, or finally buy that boat you’ve been dreaming about!

We suggest you sit down with a Midwest Lending mortgage professional, before deciding which loan is best for you. Weigh the closing costs and/or fees between the options. And take a good look at where you’re currently at financially, and in life. Are you in fact nearing retirement, or could you get a better rate of return investing the additional money you would have each month? Our experts will help you adequately evaluate your financial situation, discuss your concerns, and help you make the best decision for you and your family.