Year Fixed Rate Fixed Payment Mortgage

ADVANTAGES. Principal balance is reduced relatively rapidly compared to longer-term loans. The 15-year fixed-rate loan permits you to own your home debt-free in half the time, and for less than half the total interest cost, of a 30-year fixed-rate loan. It offers some individuals a useful financial planning tool. Interest rates may be lower than those offered on 30-year fixed-rate loans. FHA-insured, low-down-payment, 15-year fixed-rate loans are available; so are VA-guaranteed, no-down-payment, 15-year loans.

DISADVANTAGES. Higher monthly payments make these loans more difficult to qualify for than longer-term mortgages. A 15-year mortgage reduces the number of homes you can afford to buy and locks you into making monthly payments roughly 15% to 30% higher than you'd make with a comparable 30-year loan. On a $100,000, 8% note, monthly payments would be $956 for 15 years and $734 for 30 years— a difference of $222.

Because the principal balance is paid down faster, total mortgage-interest payments—a key tax-shelter benefit of homeownership—are reduced relative to a traditional 30-year mortgage (see the table below).

THE DIFFERENCE A 15-YEAR LOAN MAKES

This table shows the rapid decline in principal owed over the course of a 15-year mortgage compared with the slower pay-off of a 30-year loan. What a difference that makes in the total interest you would pay—

$66,861 on the 15-year mortgage, which is less than half the $164,153 you would pay on the 30-year loan. (Note: The total interest you would pay on the 30-year loan by the end of year 15 is $108,859.)

15-YEAR FIXED-RATE

30-YEAR FIXED-RATE

This table shows the rapid decline in principal owed over the course of a 15-year mortgage compared with the slower pay-off of a 30-year loan. What a difference that makes in the total interest you would pay—

$66,861 on the 15-year mortgage, which is less than half the $164,153 you would pay on the 30-year loan. (Note: The total interest you would pay on the 30-year loan by the end of year 15 is $108,859.)

15-YEAR FIXED-RATE

30-YEAR FIXED-RATE

YEAR

PAYMENT NUMBER

PAYMENT

PRINCIPAL BALANCE

PAYMENT

PRINCIPAL BALANCE

1

12

$927

$96,249

$734

$99,165

3

36

927

87,850

734

97,280

5

60

927

78,096

734

95,070

7

84

927

66,769

734

92,477

10

120

927

46,263

734

87,725

15

180

927

0

734

76,782

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