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Current Mortgage Rates
As I write this blog the 30 Yrs mortgage rate is approx 3.4% and 15 Yrs mortgage rate is approx 2.6%.
Sample EMI Calculation
Mortgage Type | Loan Amount | Interest Rate | EMI | Principal | Interest |
30 Yrs Mortgage | $500,000 | 3.4% | $2,217.41 | $800.74 | $1,416.67 |
15 Yrs Mortgage | $500,000 | 2.6% | $3,357.53 | $2,274.20 | $1,083.33 |
Difference | | 0.8% | -$1,140.12 | -$1473.46 | $333.34 |
Return of additional payment
15 Yrs mortgage needs $1,140.12 EMI, but doing so will result in $1,473.46 additional principal pay off. Investment of $1,140.12 results in a instant savings of $333.34 in interest. That is 29.23% return on your investment. This is only on the first month EMI. If you are already making an investment in stocks, bonds or anything else, refinancing your mortgage to 15 Yrs is a great alternative. Over the course of 30 Yrs, total interest paid will be $298,266.22. In case of 15 Yrs mortgage the total interest paid will be only $104,356.16. That is a total saving of $193,910.06 in interest.
Mortgage Payoff
With 15 Yrs mortgage you will pay off your mortgage in half the time. You will be one step closer to your financial freedom decade and half earlier. Your home equity increases more than 30 Yrs mortgage, which can be utilized by cash out refinance, HELOC or reverse mortgage.
When 15 Yrs Mortgage is rosy
If you are able to budget for the additional EMI, 15 Yrs mortgage is a great option. If you have already paid 5-10 Yrs of your 30 Yrs mortgage, refinancing to a 15 Yrs mortgage will likely lower your interest rate and help you pay off your mortgage quicker. It also induces a forced savings habit.
When 15 Yrs Mortgage isn't rosy
If the additional EMI is not within your budget and will impact your standard of living. If your income is variable or your employment isn't stable yet.
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