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The great debate – every homeowner wants a low mortgage payment and every homeowner wants to pay off their mortgage as fast as they can however combining the two takes some figuring out. Which loan is better? It all depends on what’s most important to you.
You have to decide which is more important:
- A lower payment and better monthly cash flow or
- Reducing your debt and paying your home off faster
Once that question is answered it’s then on to setting up the best course of action when refinancing or purchasing a home. This is the debate many homeowners have and deciding which is more important is something all homeowners have to do. Below you’ll find the benefits of both loan options, additional information for first time home buyers and obtaining the lowest mortgage rate.
The Details Of A 30 Year Fixed Mortgage Rate:
There are 360 monthly payments with a 30 year fixed rate mortgage and your interest rate/payment will never change. This is bar far the most popular mortgage program for both refinances and purchases. The benefits of a 30 year fixed mortgage rate is the flexibility it allows the homeowner in case something comes up. Wether it’s a job loss, an unexpected medical expense or even planned expense like a wedding; a 30 year fixed allows the homeowner to be better prepared for these sorts of expenses. Also the tax benefit is a bit greater (for some and this could change) than a 15 year fixed and lasts longer since you are paying more interest on a 30 year fixed mortgage.
Here are the important benefits of a 30 year fixed mortgage rate:
- Lower payment.
- Great flexibility with planned and unplanned expenses.
- Longer tax benefit (confirm with your CPA as to what your tax benefit might be.
- The difference in payment between a 30 year fixed and a 15 year fixed can be put to work somewhere else. Retirement, another property, college fund etc.
The Details Of A 15 Year Fixed Mortgage Rate:
If you chose a 15 year fixed mortgage rate you’ll be paying a monthly payment for 180 months. Like the 30 year fixed rate option your interest rate and payment will never change. The main benefit of a 15 year fixed mortgage rates is the ability to pay off your home in half the time (compared to a 30 year fixed). You’ll be able to build equity much faster with a 15 year fixed rate mortgage, you’ll have a lower interest rate and you’ll pay less interest to the lender (compared to a 30 year fixed mortgage)
Here are the important benefits of a 15 year fixed mortgage rate:
- You’ll pay off your house much faster.
- Lower interest rate means less interest you’ll pay to the bank.
- Larger upfront yearly tax benefit since you’ll be paying a higher payment (check with your CPA). Over time though this dwindles as more of your payment goes to principal.
- Once your loan is paid off in 15 years you can put that money to work somewhere else while someone on a 30 year fixed will be paying for another 15 years.
First Time Home Buyers:
If you’ve never owned a home you probably don’t fully understand the cost of maintaining a home and/or remodeling a home. Everything from brooms to sweep the floor to calling a plumber to fix a leak; these are expenses you need to be prepared for since their no longer is a landlord to call. My suggestion for first time home buyers is to go with a 30 year fixed. Give yourself a few years to fully understand the cost of homeownership and once you’ve grasped the costs involved consider a 15 year fixed rate mortgage.
Conventional And FHA Home Loans:
Both Conventional and FHA loan programs offer a 30 year fixed rate mortgage and a 15 year fixed rate mortgage. When it comes to the FHA loan program; most people chose a 30 year fixed rate.
Sometimes you have to look at the current market to make a decision between the two. What do I mean by that? I’m referring to the spread between a 30 year fixed rate mortgage and a 15 year fixed rate mortgage. Generally speaking the difference usually is about a 0.50% (keeping fees/costs the same). But let’s say the market the spread is much larger; something like 0.75% – 1.00%. If you were borderline in deciding on a 30 year fixed and the market spread with a 15 year fixed all of a sudden became as wide as 1% you may want to re-evaluate your decision. The reason is the market is saying long term fixed rates are not very attractive and short term (15 years) are a better value.
On the flip side; if you decided on a 15 year fixed and the rate was only .25% better than a 30 year fixed then you may want to reconsider your decision to go with a 15 year fixed. The reason? the market is telling you that short term rates are expensive compared to long term rates and ultimately it might be more cost effective to go with a 30 year fixed rate and simply pay extra towards the principal.
Which Mortgage Term Should You Chose?:
Deciding which mortgage term to chose is a difficult task however it’s always best to make sure that the mortgage payment is no too much of a strain on the monthly budget. I suggest to clients to pick the term that best suits their lifestyle in terms of how they spend the money the earn and their medium to long term financial goals. People are different and what’s good for one person/family may not be good for another. We’re happy to discuss in further detail the benefits and drawbacks to both the 30 year fixed mortgage and the 15 year fixed mortgage if needed.
The Lowest Mortgage Rate:
Day in and day out we work hard to bring the lowest mortgage rate to our clients. 30 year fixed mortgage term or a 15 year fixed mortgage term; we want to provide the lowest rate possible. We understand that it’s extremely important to them as every penny counts. So what do we do that other mortgage companies don’t?
First Step To Bringing The Lowest Rate To Our Clients:
We track the Mortgage Backed Securities market so we can inform our clients as to what is going on with mortgage rates and then we implement a strategy for locking (if the client wants to wait and lock). Most Loan Officers will tell you the 10y Treasury sets mortgage rates and nothing could be further from the truth. What sets mortgage rates? Mortgage Backed Securities, lenders operational costs and volume needs. In fact if a Loan Officer tells you the 10y Treasury sets mortgage rates I’d suggest your find a new Loan Officer.
Second Step To Bringing The Lowest Rate To Our Clients:
We’ve implemented the latest technology to help keep our costs down. From being able to apply online to uploading docs to signing disclosures digitally; we’ve embraced the latest technology to not only lower our costs but add greater efficiency to the loan process.
Third Step To Bringing The Lowest Rate To Our Clients:
We don’t have loan processors, secretaries and regional manager bonuses to pay. From beginning to end you’ll work with one person; not 3 or 4 different people. That provides a more efficient process and you’ll always know who to call or email should you have a question