15 year mortgage rates are always lower than the 30 year. The longer the mortgage term, the more expensive it is. The problem is even though the rate is lower, the payment is higher so they sound like a good idea until you see the payment. Most people go right back to the 30 year after that.

But now with rates being so low, the 15 year is gaining some ground. Check out this article in MarketWatch that says, “The key to the shift is lower interest rates, which makes it easier for borrowers to manage payments on 15-year loans—and still pay off their notes in half the time.”

Note: Read Our Top Five Mortgage Complaints!

How much can you really save?

We use an example of a $275,000 mortgage to calculate the interest and the payments for a 15 year mortgage and a 30 year. We will use Fannie Mae mortgage rates or conventional mortgage rates but FHA and VA also have 15 year terms available.

The monthly payment for the 30 year at 5% would be $1181 principal and interest only. You will spend $14,172.09 on your house in the first year. $10,926.29 will go towards interest and $3,245.80 will go towards principal.

The monthly payment for the 15 year at 4.625% would be $1697. You will spend $20,364.89 on your house in the first year. $9,956.20 will go towards interest and $10,408.69 will go towards principal.

You see how the interest payments are almost the same but the principal payments are 3 times better with the 15 year mortgage.

People are excited once they see the 15 year rates and it sounds like a fantastically smart thing to do (and it is)…a lower rate, who wouldn’t take advantage of that?

But then they get a look at the payment and they go back to the 30 year. It is all about payment with most people but that is what got us into this whole mortgage mess. Too many people looking at the adjustable rate mortgage rates because of the payment and they didn’t think about what would happen down the road.

If you are thinking of refinancing, think about going into a shorter term like a 15 year. Why go back in time and start the clock all over again.

If you can’t swing the 15 year payment, try a shorter term like a 20. The rate will be a little higher and your overall savings is not as much but it’s still better than the 30.

I used our calculators for these payment examples so feel free to play around with them by clicking here.

Good Luck!

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