The Benefits of the 15 Year Loan
On the one hand, you pay off the loan in half the amount of time it would with a loan of 30 years. So if someone is currently 30 years to repay the loan when they are 45 instead of 60. Because it takes half the time, people often think that the payment of a loan of 15 years is twice what a loan in 30 years, but this is far from the case. For example, if we look at Compass Bank today to 30 years $ 160000 loan will have a monthly payment of $ 1037.75. On the other hand, a 15-year loan is $ 1382.80 per month.
This loan shorter life translates to pay much less interest over the life of the loan. To find out the interest we take the total payments per year over the life of the loan and subtract the original amount of the loan which is 160k. Therefore, the loan for 30 years we use the formula ($ 1037.75 * 12 * 30yr) – = $ 160000 $ 213590. So we paid a total of 213590 U.S. dollars in interest over 30 years. On the other hand, for a loan of 15 years using the same formula ($ 1382.80 * 12 * 15yr) – $ 160000 = $ 88904, you end up paying only $ 88904 in interest, which is a 59% savings. The details of why you pay less interest, but somehow do not have a large increase in monthly payments get a little involved. Since the $ 160000 be amortized over 15 years, more than your monthly payment toward the principle amount of the loan in 30 years, so that his next month’s interest is calculated from a smaller amount of loan . For example, after 3 years, its principle of balance is $ 154351 in one year and 30 $ 138279 for 15 years. As the balance is paid per month, your total interest is significantly smaller, so when you spread out over 15 years, not double the year 30 monthly payments. Another factor to pay less each month is that most lenders will give you a better interest rate for a loan of 15 years for a loan of 30 years. In our examples, the compass interest rates from 6375 to 15 years 6.75% and 30% per annum.
Are there any disadvantages to a loan of 15 years? The biggest is probably inflation. If we went through a period of rapid inflation after the last 15 years the loan payments actually be less due to inflation.
I’m not saying everyone should get a 15-year loan. Often, people can not avoid the extra money each month and need to put that money in get a bigger house because of children or other needs. And I never expect a loan of 15 years to be the most prevalent mortgage used. But before choosing a mortgage is probably a wise move to consider the 15-year mortgage and the weight of its advantages.
