Taking advantage of 15 year mortgage rates and reducing your loan term can save you big time. We’re going to talk about the best ways to win big on your mortgage. How do you do it? Well, here are 3 ingredients for a recipe of success:
- Lower your interest rate
- Shorten your term
- Make extra payments
These 3 ingredients will help you save money and get out of debt quicker. In this post, we’re going to go into some details and provide you with some examples. Let’s dive in!
15 Year Mortgage Rates and Reducing Your Loan Term?
The lower your current mortgage interest-rates, the less interest you pay. Yes, it’s as simple as that. But other companies might tip-toe around this conversation.
They might tell you that a lower interest-rate isn’t all that important because of the other things they offer. You might want to be skeptical about this.
Let’s look at this example:
$250,000 at 4.75% vs. $250,000 at 2.75%
- A 30-year term at 4.75% interest is going to be $1,304 a month, and your grand total (when your mortgage is paid) will be $469,000.
- For a 15-year term 2.75% interest is going to be $1,021 a month. Your grand total ends up being $367,000.
As you can see, the math doesn’t lie. In the end, you’re going to save $102,000 with the lower interest-rate.
How Does the Shorter Term Affect Anything?
Well, the longer it takes you to pay back something with interest, the more money you’ll end up paying. For lenders like Low VA Rates, we will charge lower interest-rates on shorter term loans. So a 15-year loan is going to have a lower interest-rate than a 30-year loan.
Let’s look at another example:
- 15-year loan at 2.75% is going to come to $1,697 a month. The total amount will be $305,000.
- 30-year loan at 4.75% (and we’re using a higher interest rate because we’re assuming you get the low interest rate on the shorter-term) will be $1,304 a month. The total amounts to $469,000.
So you end up saving $164,00 with the 15-year term. The short term is going to save you money. But let’s compare the short-term and the long-term with the same interest-rate.
- We’ll take the same 15-year loan at 2.75% which equals $1,697 a month with the total amount of $305,000.
- Let’s take a 30-year loan at 2.75%. The monthly payment is $1,021 and the total amount equals $367,417.
Again, the math doesn’t lie and you can see the savings with a shorter term loan.
The Icing on the Cake: Extra Payments
What to say about extra payments? They can make your term even shorter.
Here’s an example on how this works:
- $250,000 loan at 4.75% interest with an extra $100 on your monthly payment can save you almost $40,000 in the long run.
It’s also important to note that the extra $100 you make goes toward your balance, not the interest.
The Secret Ingredient
You get out of debt quicker with the shorter term. Yes, it sounds obvious but since we’re already doing examples, let’s look at another one in detail.
$250,000 on a 30-Year Term vs. $250,000 on a 15-Year Term
We’ll look at what happens when you’re only five years into your mortgage.
- On the 15-year term at 2.75%, your balance from $250,000 goes down to $176,000.
- Whereas on a 30-year term at 2.75%, your balance from $250,000 only goes down to $228,000.
As you can see, you end up paying more interest on the 30-year term and your balance doesn’t go down as quickly as the shorter term does.
See For Yourself
All of these numbers we used as examples have been pulled from a mortgage calculator. Go to a search engine and search mortgage amortization calculator to crunch the numbers yourself. We even used an extra payment calculator in our example for the extra payments section.
All of the numbers we used in this post are just examples. So if you’re interested in what you qualify for, contact us here at Low VA Rates. You can speak to one of our loan officers and take advantage of lower rates and shorter terms.