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A mortgage that has grown in popularity is the 15-year mortgage. Fifteen-year mortgages are an excellent way of reducing your interest costs. There is a misconception by some people that the monthly payment of a 15-year mortgage would be twice as much as the 30-year mortgage. Not true at all! Instead of the $1,498.88 monthly payment in our earlier example, the monthly payment for 15 years would be $2,109.64. However, the first time homebuyer may feel uncomfortable with the higher monthly payments of a fifteen-year loan. A solution to this problem would be for the homeowner to get a 30-year mortgage, but pay it as a 15-year mortgage. This way the homeowner has the option of when to start making prepayments, and could then cut the length of the mortgage to 15 years.
PLAN 5: PAYING YOUR 30-YEAR MORTGAGE AS A 15 YEAR MORTGAGE
EXAMPLE: Adding $610.76 to each payment to pay off a 30-year mortgage in 15 years.
Summary
TOTAL INTEREST IF NOT PREPAID $ 289,593.09
TOTAL INTEREST IF PREPAID $ 129,735.83
TOTAL AMOUNT SAVED PREPAYING $ 159,857.26
NUMBER OF MONTHS SAVED BY PREPAYING 180
So when you feel comfortable with a higher payment (the prepayment) start prepaying and enjoy the savings!
Prepaying VS. 15-Year Mortgages