The Real Deal on Mortgage Savings
I remember when my own parents were buying a house, there was always talk about 15 year mortgages vs. 30 year mortgages; but it didnâ€™t really mean anything to me. Being as young as I was, I didnâ€™t really have an understanding of compounding interest.
Things have changed a bit since then, but I still find that when talking about mortgages, and how much one can save you over another, it’s better to just talk turkey.
Using actual numbers puts a real face on the potential savings. Below youâ€™ll find various types of fixed rate mortgages from 15 up to 40yrs. You’ll see I’ve also included some additional What If’s?; such as paying an extra $100 a month.
Original Loan Value: $145,000
15 Year Mortgage
Total Interest Paid: $80,926.66
Monthly Payment: $1,255.15
Payoff Date: July 9, 2022
15 Year Mortgage + $100 extra monthly
Total Interest Paid: $70,409.39
Monthly Payment: $1,355.15
Payoff Date: October 9, 2020 (13 years)
30 Year Mortgage
Total Interest Paid: $181,514.08
Monthly Payment: $906.98
Payoff Date: July 9, 2037
30 Year Mortgage + $100 extra monthly
Total Interest Paid: $131,565.17
Monthly Payment: $1,006.98
Payoff Date: June 9, 2030 (23 years)
30 Year Mortgage + $200 extra monthly
Total Interest Paid: $104,590.13
Monthly Payment: 1,106.98
Payoff Date: May 9, 2026 (19 years)
30 Year Mortgage + $300 extra monthly
Total Interest Paid: $87,277.67
Monthly Payment: 1,206.98
Payoff Date: August 9, 2023 (16 years)
40 Year Mortgage
Total Interest Paid: $257,529.86
Monthly Payment: $838.60
Payoff Date: July 9, 2047
The main things we can take home 😉 from the above is that:
- 15 year mortgages will save you the most money (even more so than demonstrated above because they typically have lower interest rates.). Compared to the 30year, the savings in interest will be about $100,500!
Letâ€™s assume for a moment that after you finish paying off the house at the 15 year mark, you start putting the same amount into a high-yield savings account (Such as the one’s I’ve mentioned here). At the end of the next 15 years, thatâ€™ll add up to $336,892.11 ($110,965.11 of which is just interest you will have accrued!)
- If youâ€™re going to pay $300 extra every month over the life of a 30 year loan, you might as well switch to a 15 year loan and save yourself some money (~$7000) (Again, 15 year loans have lower interest rates, so itâ€™ll probably be even better than that).
- 40 year mortgages suck. Sure, many 40 year mortages donâ€™t come with 6.4% interest rates, but even still youâ€™ll probably end up spending more than had you went with the 30year + 100 option.
Want to do your own comparisons? Try BankRateâ€™s Mortgage Calculator.