Dear Sue,
I am in the process of buying my first home from a friend of mine.
I have been pre- approved for the financing but I am not sure about a 30-year loan versus a 15-year loan.
My father, who doesn’t even think that I should be buying a home right now, said that I should get the 30-year loan. I am leaning toward the 15-year loan because I would like to be debt free sooner rather than later.
Your input would be greatly appreciated.
~ Buyer Bob
Dear Bob,
Congratulations.
You are going to love homeownership.
In spite of current market conditions, homeownership is very rewarding. In many cases the mortgage payments are equal to rental payments.
The tax benefits are fantastic. Homeowners are not at the mercy of a landlord. If the purchase is viewed as long term, it will be a great investment.
According to data from CoreLogic, a consumer information provider, 26 percent of the refinance loans that were closed between January and June of this year were 15-year, fixed-rate loans.
Why? The average interest rate on a 15-year loan is 3.85 percent, compared to an average 30-year loan at 4.75 percent.
Let’s compare the 15- and 30-year loan using a $250,000 mortgage as an example.
A 15-year loan using an interest rate of 3.85 percent would have a payment of $1,830 per month. The full amount paid over 15 years would be $329,400.
The 30-year loan using an interest rate of 4.75 percent would have a payment of $1,304 per month. The full amount paid over 30 years would be $469,400.
The payment on the 15-year loan is only $526 per month more than on the 30, but the savings is more than $140,000.
Choosing between the two will depend how financially stable you are and how long you plan to live in the home.
If you plan on staying for 5 or more years and you are financially stable, the 15-year plan is the way to go.
If your finances are “iffy” and you plan on staying in the home long term you can always get a 30-year loan and make periodic principal reduction payments or maybe an extra payment or two each year.
This option gives you much more flexibility.
Whatever loan you choose, homeownership is a matter of good Home $$$s and Sense.
Sue Thompson is owner and sales manager of HomeTown Realtors. She can be reached at seesue@seehometown.com, or on the web at homedollarsandsense.com.
