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What's the Difference Between 30 and 15 Year Mortgages?

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Weighing 30- and 15-year Fixed-Rate Mortgages


  One important decision home buyers face is whether to secure a 30-year, fixed-rate mortgage or go for a 15-year one, which carries a lower interest rate.

  “All things equal, a 15-year mortgage allows you to pay off your mortgage twice as fast while saving a significant chunk of money on interest,” explains Mark Crosby, a mortgage expert in Wilmington, Del. Still, “I think the 30-year mortgage is a logical choice for most people because it has more advantages.”

  For starters, mortgage payments are less expensive with a 30-year mortgage, enabling more consumers to qualify for home purchases. “With a 30-year mortgage you are almost always free to make additional principal payments necessary to pay off your loan [faster] without penalty,” Crosby says. “With the 15-year loan, you are committed to giving that extra money to your lender each month, whether you can really afford to at the time or not.”

  Higher payments that come with a 15-year mortgage make little sense if they keep you from building savings or contributing to a 401(k) plan, IRA, and perhaps your kids’ college funds, adds Dan Green, a loan officer with Waterstone Mortgage in Laurel, Md. “You could be needlessly tying up too much of your money into your house.”

  Green said another reason people favor a 30-year fixed mortgage is the tax benefit that can be achieved. “This is because the amortization schedule of 30-year fixed is back-heavy, with early-term payments big on interest and light in principal,” he explains. “By contrast, the 15-year fixed is always light on interest which lowers its taxpayer benefits.”

  While it’s true you gain more of a tax break from a 30-year loan, it shouldn’t be the main consideration when deciding on a term. The 30-year borrower pays less in yearly taxes because he or she pays significantly more in interest.

  Sot it all comes down to choice and circumstances. Choose the 15-year loan if you have the financial wherewithal to assume the payments. Your interest savings will be substantial and you’ll own your home faster. Opt for the 30-year loan for lower payments and greater flexibility. You can always choose to pay more on your mortgage when the money is available.

  For information regarding mortgages please visit our mortgage partner's website, www.HomeCapitalNetwork.com.

About Prudential New Jersey Properties

Based in Somerset, Prudential New Jersey Properties offers resale, new homes, fine homes and resort and commercial properties as well as relocation, mortgage, title and insurance services. With 19 offices and more than 600 sales associates serving 11 counties -- Essex, Hunterdon, Mercer, Middlesex, Monmouth, Morris, Ocean, Somerset, Sussex, Union and Warren – Prudential New Jersey Properties is the state's largest Prudential Real Estate Affiliate and the second largest independently-owned residential real estate company. For more information, visit http://www.PrudentialNewJersey.com or contact the home office in Somerset at 800-LIVE-IN-NJ (800-548-3466).



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