secret to 15 year loan benefits without the risk

Many financial advisors, like Dave Ramsey, recommend getting a 15 year fixed rate mortgage when you buy a home or refinance. There are several benefits to paying your mortgage off sooner compared to keeping it around 30 years, however, there are also associated risks that should be considered.

As you would guess, shorter term mortgages have increased monthly payments which may not be the best for your family. This article will show you how to take advantage of the 15 year benefits without the added risks.

Benefits of a 15 Year Fixed Rate Mortgage

  • Build Equity Faster
  • Save on Mortgage Interest
  • Pay off Home Faster
  • Lower Interest Rates
  • Less Interest Paid

Paying off your home loan in 15 year or less can help to save homeowners thousands of dollars in interest compared to longer loans.

Historically speaking, shorter term loans have had significantly lower rates than longer mortgages like the popular 30 year fixed rate loan.

With a 15 year mortgage you are forced to pay more per month therefore you build equity faster and pay less interest over time.

RELATED: See our Mortgage Amortization Calculator to estimate total interest paid!

Downsides of a 15 Year Fixed Rate Mortgage

  • Higher Monthly Payments
  • Cannot Pay Less than the Minimum Payment
  • Have Less Leftover Money to Invest in other Assets
  • Less Buying Power
  • More risk of not being able to pay higher payments

While there are benefits of paying your mortgage off more quickly with a 15 year fixed rate mortgage, there are also several downsides.

Shorter term mortgages set your minimum monthly payments higher so the payment can become more difficult to pay in a hardship. This can raise the chances of not being able to pay and having late payments.

Because the set payments are higher, this increases your debt to income ration (DTI) which gives you less buying power. On a 15 Year mortgage you may not be able to afford to buy your dream home.

How to get the Most Flexible 15 Year Mortgage

When deciding to go with a shorter term for your mortgage amortization, you have to keep in mind that you can never pay LESS than the minimum payment. This means that if your mortgage payment is $2,000 per month, you are forced to pay that regardless of what else is happening with your finances.

Many client refinance to a 15 year mortgage only to run into unexpected financial hurdles such as a job loss, car breakdown, college tuition, weddings etc.  They then are forced to go through the refinance process and switch to a 30 year fixed rate mortgage. This process is counterproductive and can have large expenses in paying closing costs.

How to get the Most Flexible 15 Year Mortgage

Here is the secret to getting the benefits of a 15 year mortgage without the extra risk! If you are concerned that the payment might be too high for a 15 year loan, we advise our clients to take out a 30 year fixed rate mortgage and pay it as if it were a 15 year loan!

For example, if your 30 year mortgage payment is $1,500 per month and the 15 year would have been $2,000, then simply pay an extra $500 as a principal payment.

This combination will result in your loan being paid off in roughly 15 years and will save you thousands in interest. You will still have the flexibility to pay only the minimum 30 year payment if you run into a financial hardship.

30 year fixed rates are within .25% of a 15 year rate so the end results of paying extra principal will be within a payment or two at the end of your loan.

Call a Michigan mortgage broker at Riverbank today at 800-555-2098 to review mortgage options or request information below:

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