Buyers are saving money on morgages because interest rates for home loans that are at a 50 year low. With the cost of financing so low it makes very good sense to finance a home with a 15 year fixed rate loan. Yes, the payments are higher, which does affect qualifying for the loan. However, the interest savings are great over the term of the loan combined with the monthly payment ending in one-half the time.
If a buyer was putting 20% down or more and requesting a $417,000 conforming loan today's interest rates would be approximately 4.50% on a 30 year loan and 3.875% on a 15 year loan. The buyer would pay approximately one point.
- 4.500% (30) $2,112.88 Monthly Payment
- 3.875% (15) $3,058.44 Monthly Payment
The difference in the two payments is $985.56. If the buyer felt comfortable with the 30 year payment then stretching a little to make the higher payment is a prudent financial decision. In 15 years the savings to the buyer is $210,116.88. With the 30 year loan the total interest paid over the life of the loan is $343,635.99. By adding the total interest to the original principal balance the total cost to pay off the loan over 30 years is $760,635.99. By comparison, the 15 year loan total interest is $133,519.71 for a total cost over the life of the loan of $550,519.71. That is a savings of $210,116.88.
Most first time homebuyers are just trying to get into a home and qualify for the loan. The 15 year loan is not an option in most cases. However, for the baby boomer looking ahead to retirement, when the 15 year loan is paid off the 30 year loan will still have 15 years to go at $2,112.88 monthly payment.
Tim Lorenz
Instant MLS Listings & Free Market Analysis
"We have actually closed many short sales!"
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Tim Lorenz . Over 40 Years Experience Representing South Orange County Home Buyers, Sellers, Investors and Relocations!
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