Which is better? 15 year mortgage? 30 year mortgage? We'll break down the numbers and I'll show you how a 30 year mortgage will actually increase your net worth more than a 15 year mortgage!
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0:00 30 vs 15 year
0:44 Main differences
3:52 Chart of cost differences
5:19 CalmMoment
6:38 3 options you should consider
8:07 The BEST 30 year loan strategy
13:49 Questions to help you decide
15:56 Typical down payment on a home
Hey, Kyle here with winthehouseyoulove.com. Today, we're talking about a 30 year versus a 15 year mortgage, what we're first going to talk about it is the differences then we're going to go into numbers about how a 30 year loan can actually save you a lot more money than a 15 year with a certain strategy.
And then at the very end, we're going to talk through three questions that are going to help you really kind of figure out which option is best for you. Because we can go into numbers all day long and talk about differences and opportunity costs and all the things that you can consider in here. But ultimately, you're just trying to make a quick decision on what's best for you.
So we're going to talk through it, go through the numbers and then help you make that choice here at the end. So first let's talk about the differences between a 30 year and a 15. So a 30 year is the most common. Most people go with a 30 year loan. And the reason why is because that payment is lower, right?
When we're talking about the 30 year versus the 15, we're talking about how long does it take you to pay back that loan? A 30 year loan is going to be less costly per month than a 15, which is not as common. Okay. Now let's talk about the rate differences here. So in this example, I'm pulling up some notes here on my computer.
What we're going to talk through is an example of a $300,000 house with 10% down. On a 30 year loan, this would get you an interest rate of about 2.875%. On a 15 year, you'd be looking closer to a 2.5%. So you're getting a lower interest rate with a 15 year loan because it's less risky to a lender. Now, as far as the payment, you'd be looking at about $1,120 per month.
On a 15 year loan, you'd be looking closer to $1,800 per month. So that's a difference here of $680 per month. So you can see that 15 year loan is $680 more expensive per month, which changes how much you can afford. If on a 15 year loan, you could afford a $300,000 house, on a 30 year loan, since your payment is less, you could afford a $400,000 house.
Okay. So you have more affordability with the 30 year. You can afford a larger house because the payment is lower. All right. So on a 30 year, you can always refinance this or pay extra. People sometimes forget that you're probably not going to hold onto that specific loan for 30 years. You'll most likely end up refinancing it, maybe to drop off mortgage insurance or to change the loan type or to lower the interest rate.
Now on a 15 year loan, something that's interesting that you can consider is at the end of 15 years, your mortgage is paid off. You don't have that payment anymore. Right? You don't have that, let's say estimated $1,800 per month payment. Well, you can now go take the $1,800 and invest it in something instead of letting that money do nothing.
So with both of these loans, really the payoff is up to you, right? With a 30 year loan, you can pay it off early, same thing with a 20 year or a 25 or a 15 or a 10 year loan. You can pay them off early if you want to. Something that's really beneficial about a 30 year loan, though is you have a lower obligation to pay back, right? So if we're talking about this example, in this example, you are obligated on a 30 year loan to pay $1,120 per month. On the 15 year loan, you're obligated to pay $1,800 per month. So what happens when an event like COVID happens and now all of a sudden money is tighter.
It's a lot nicer to have a 30 year loan to have that flexibility if you need it than to have the 15 year loan and not have that flexibility, right. That's an extra $680 per month that you have as some wiggle room if you ever need it. So now let's talk about some of the differences through the years. And we're going to go into some special circumstances here in a slide or two.
But first just talking about the differences we can see this 30 year is on this big purple line and the 15 year is on the red. Okay. So we can see over a period of three years. So three years up here is a difference of $5,000. Over a period of 10 years, that's a difference of $25,000. Okay. Over 20 years, we're seeing a difference of $66,000.
-- Legal --
Kyle Seagraves
NMLS# 1701021
Motto Mortgage Alliance
8900 N. Dixie Dr.
Dayton, OH 45414
Equal Housing Opportunity
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