Shorter Term – More Savings
Whether you’re refinancing your current home or buying a new one, something worth considering is a 15-year loan rather than a 30-year term. The payments will be a little higher but you’ll get a lower interest rate and you’ll build equity much faster.
Let’s look at an example of a $300,000 mortgage with the choice of a 30-year term with a 3.92% rate compared to a 15-year term with a 3.2% rate. The payments would be $682.28 higher on the shorter term but the equity would be considerably higher even after you adjust for the higher payments.
Another benefit is that the shorter-term loan creates a forced savings situation where the savings on longer term loan might end up being spent rather than being saved and invested. A conscious decision to pay more in payments could pay big dividends in the future.