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Rethinking The Thirty Year Mortgage

Perhaps the single most impactful decision a consumer can make is to choose a 15 year mortgage rather than a 30 year. I have held financial workshops all around the United States and each time I've covered this topic my audiences have been universally surprised. Even the most educated of those I have discussed this with have scratched their head wondering why most people opt for a 30 year mortgage when the difference in monthly payment is so modest. This is probably just one of those financial traditions that most people go along with without questioning it.  A home purchase will likely be the largest single purchase you will make in your lifetime.  However, it is interesting to note that recent statistics show that most of us will spend more on vehicles during our lifetime than we will on our residences.

Consider the following example, based on today’s rates from

Mortgage Amount $200,000

30 Year Mortgage Rate 4.44%  Monthly Payment $1,006.25

15 Year Mortgage Rate 3.94% Monthly Payment $1,473.36

The difference in payment amount between a 15 and 30 year mortgage is smaller than most people imagine.

Consider the total payments:

30 Year Mortgage $362,250

15 Year Mortgage $265,204

Opting for a 30 year mortgage on a $200,000 loan can save you nearly $100,000 in payments!

News reports are confirming that a new trend in mortgages is emerging. More and more people are choosing a 15 year mortgage rather than a 30 year. While I am sure there are a variety of reasons for this, I have a theory on what the most compelling one may be. Over the last 30 years people have been minimally concerned with the mortgage debt they were carrying on their home. This was based on the premise that real estate would continue to rise at a very healthy growth rate. The idea was that no matter how much we borrowed, the value of our home would continue to rise and offset the mortgage debt. Now, with millions of Americans owing more on their mortgage than their homes are worth, a paradigm shift is occurring. People are beginning to realize that presuming the future and borrowing against their home as if it were a giant piggy bank is risky business. I think the idea of large down payments and shorter mortgage terms are good for both our personal finances as well as the nation’s economy.


How To Create A Flexible Payment 15 Year Mortgage Plan

Despite the fact that a 15 year mortgage payment is not prohibitively higher than its thirty-year counterpart, some may be reluctant to be locked in to the higher payment. One popular option is to obtain a 30 year mortgage and add to the principal each month to effectively reduce your payment term to 15 years. You can calculate how much additional money you need to add each month by using a free online mortgage calculator.  This approach may be a good alternative for those that are not completely sure that they can afford the higher payment of a 15 year mortgage. It will afford you the flexibility to make only the minimum required payment(based on the thirty-year schedule) if you need to fall back to that.  One major disadvantage of this approach is a higher interest rate. Currently there is a 1/2% lower rate on the 15 year mortgage. 

Have you opted for a 15 year mortgage or would you the next time you refinance?  Share your story or thoughts below in the comments section provided.

Helping you make the most of God’s money!

James L. Paris
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