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Lower Payment vs. Lower Interest Rate
With interest rates still near all‐time low levels, an argument can certainly be made to consider a shorter mortgage term, such as a 15‐year loan. But there are some important factors to consider.....
The greatest benefit of choosing a shorter term is to know that the mortgage will be paid off in 15 years, saving the borrower thousands of dollars in interest payments over 30 years. A 15‐year term loan builds discipline, forcing you to make the 15‐year payment.
“the lower rate and shorter term come at a monthly cost”
However, the lower rate and shorter term come at a monthly cost for borrowers. The 15‐year loan payment can be hundreds of dollars more per month than the 30‐year loan. And in these tough economic times, "cash is king." That is, "cash on hand" is king. Therefore, many people may be better served by having a smaller mortgage payment under a 30‐year fixed rate loan, and then saving or investing the extra money. The key is actually saving and investing the extra money. People who find themselves without a job or who have a pressing financial need would benefit from being able to access these saved funds.
The Tax Consequences
While paying less interest saves you money, it may not save you exactly what you thought since your corresponding tax write‐offs will decrease. Depending on your marginal tax bracket; this could make a substantial dent in the savings you thought were being achieved with the lower interest due. So you must consider income taxes for a relative comparison.
Best Path For All Prospective Borrowers
A number of attractive purchase and refinance mortgage options are still available. However, since an individual's or family's mortgage payment is often their largest monthly payment, it's important to get individual advice about your unique situation in order to make the best decision.
Call or email me today to discuss which options you should consider based on your short‐ and long‐term financial objectives...I’m here to help!!!
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