Refinancing Mortgage Loans

Refinancing Mortgage Loans Loan – Which is Better 15 or 30 years?

Although considering their options in refinancing mortgage loans, many people are asking themselves if a fifteen-year or a thirty-year mortgage is the most excellent option. Let’s take a quick look at both options from a financial point of view and look at the evident rewards and disadvantages of both are.

An illustration of Both Loans plus Their Costs

Assume for a split second your aim of looking at refinancing mortgage loans of $100,000. If you were to do a fifteen-year loan at say 5% interest, the payment on your mortgage loan would be about $800 each month. The entirety of interest paid over the fifteen-year time would be about $42,000. Because your mortgage interest is tax deductible, this makes your total interest paid more like $32,000 over the fifteen-year life of your loan.

By applying the comparable math to a thirty-year fixed mortgage at 5.5% interest, your monthly payment is about $575 each month, about $255 less than the fifteen-year mortgage, but the interest over the life of the thirty-year loan would be about $46,000 after tax considerations.

Rewards and Disadvantages to Each Option

So, in the example above, if you stare only at the rea costs, you will see that the fifteen-year mortgage is clearly the cheaper choice of the two. You will be mortgage free in half the time and you will a less for your home as well. However, each month you will be paying an additional $255 per month on your mortgage and could have invested that money into your IRA or into the stock market. And, you are also stuck with the higher payment for the life of the loan regardless of what else happens in your financial life.

With the thirty-year mortgage option, you can clearly see that you will have the extra $255 each month to do with as you please. Most investments, even very conservative ones, will net you a return of more than 5.5%. If you were to take that extra $255 each month and invest it, at even 6%, after the fifteen years you would have more than $65,000. At this point the balance due on your mortgage isn’t much larger than that and you could easily pay it off. This would actually make the thirty-year loan cheaper in the long run!

While the thirty-year mortgage could be the better option it does rely on the fact that you have to have discipline and save that extra $255 each and every month. While some people have this dedication and discipline, a lot of us do not. Simply by paying the extra $255 to our mortgage would insure that we have an automatic savings plan in place and we would be mortgage free in fifteen years.

In computation, investing until the end of time involves some form of risk. What if you choose to invest your extra money each month and do not see the rate of return higher than your mortgage payment interest would have been? There are unknowns to this scenario.
While no option is right or wrong for everyone, refinancing mortgage loans for a better interest rate is always a good decision. Choosing whether or not you wish for a fifteen-year or a thirty-year mortgage is a more alternative.

Article Source: http://www.articlegear.com

Roy Spencer Box 12143 Casa Grande, AZ 85230-2143
Refinancing Mortgage Loans. Click here to email: www.BestRefinance-Mortgage-Rate.info

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