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30-year mortgage leaves homebuyers poor?

It’s not your only choice

Although the 30-year fixed mortgage may seem like the go-to option when buying a home, it may not always be the best one, according to an article by Philip Van Doorn for MarketWatch.

Whereas the 30-year loan may make monthly payments more affordable, it also accrues much more interest than a 15-year fixed rate loan, according to the article.

Will this reignite the debate on the role of the 30-year mortgage in our industry? Tell us your thoughts in the comments section below.

From the article:

Indeed, the 30-year fixed-rate mortgage loan wasn’t always the standard in the U.S. “Before the Great Depression, home mortgages were shorter-term loans, 15-year at the longest,” according to White Fite, president of Angel Oak Home Loans, a retail mortgage lender based in Atlanta.

“After the Great Depression, in an effort to make homes more affordable, the government guaranteed loans to allow longer terms,” Fite added.

Based on a home purchase price of 260,000 and a 20% down payment, here is the difference between a 30-year fixed rate loan with an interest rate of 3.7%, and a 15-year fixed rate loan with an interest rate of 2.7%:

  • 30-Year: Monthly payments of $957.39 and total interest paid over the life of the loan of $136,659
  • 15-Year: Monthly payments of $1,407.59 and a total interest paid over the life of the loan of $45,186

Of course, not everyone can afford a 20% down payment, and Millennials especially are looking more at 3% down options, however in the end, they would still pay less interest with the 15-year loan.

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