No! Paying a loan in half the time does NOT mean making double payments. Not even close. In fact, many homeowners are surprised at how little they need to pay on a shorter length loan.
For decades, the 30-year mortgage was the standard when it came to financing a home purchase. But, in recent years, the 15-year, fixed-rate mortgage has become popular for a couple of reasons.
One advantage of the 15-year fixed is that a shorter term can mean lower rates. Today’s interest rates are historically low at around 3.9% to 4.5%, so they aren’t the make-or-break issue they were, say, in the 1980s when the interest rate could easily top 12%. But interest rates count.
Another advantage isn’t as easy to see. On a 30-year $100,000 loan financed at 3.9%, the payment would be a very affordable $473. On a 15-year loan, the payment rises to $736, still likely affordable.
So, why not just take the lower payment for 30 years? Because nestled within that lower payment, is a big stack of money. On that $100,000 loan over 30 years, you pay nearly $70,000 in interest. That’s real money. On the 15-year note, you pay less than half of that: about $32,000.
The question for the buyer is whether to shop around for a lower-priced property overall (in order to make the 15-year numbers work), or buy something more expensive with features that make the 30-year mortgage more attractive.
Rick Good spent ten years in the newspaper business, including with The News & Observer (Raleigh, NC) and The Greenville News (Greenville, SC). He co-wrote, with Melinda Coleman, Rutledge to Riley: Governors of South Carolina, 1776–Present (Published by The Greenville News), and is the author of Mind Games Trivia #1 (Amazon). He has recently spent 15 years creating original trivia content through Sounds Good Mobile Entertainment and continues that with his new company, SGME Software. He edits The Smart Reader’s money, real estate, and business coverage.
