When should I get a 15-year loan?

Fifteen-year loans have become quite popular in the 90s. Thanks to historically low rates, borrowers can use a 15-year loan to pay off their home loans quickly without an unbearably high mortgage payment.

The benefits are simple: You will own your house free and clear more quickly and you will save a great deal of interest. For example, a couple in their mid 40s may like this concept knowing that by the time they reach age 60, they own their own home without having to make house payments. For a young couple in the mid 20s, it may not make as much sense as having a longer term 30-year loan.

Key to deciding is to compare the monthly payments and see how comfortable you are with the higher payments of a 15-year loan.

Let's look at a $100,000 loan. Assume that the rate for a 30-year loan is 7% and that for a 15-year loan it is 6.5%. For the 30-year loan your monthly payment is approximately $665. For the 15-year loan it is approximately $871. That's a difference of $206 per month.

For some people that extra $206 may be better utilized saving for a child’s education or investing in an IRA. For others, it may be insignificant. Ultimately, you must decide. The good news is if you go with a 15-year loan in this example, your savings will be as follows:

30-year loan @ $665 a month for 360 months = $239,400 in total payments
15-year loan @ $871 a month for 180 months = $156,780 in total payments

For the short-term loan you would save $82,620!

By the way, you might want to pay off your loan early but can't quite handle the payments on a 15-year loan. If that's the case ask us about our 20-year loans. And for those who want to really pay their loan off quickly, we can offer a 10-year fully amortizing loan.