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How to's and money-saving tips from resident homeowner and mortgage professional, Cathy West

3 homeowner tips on 15-year mortgages

For some homeowners, the high monthly cost of a 15-year mortgage might not make much sense. However for those who can afford to cover the larger sums required for a 15-year mortgage there are numerous advantages.

Inside Mortgage Finance publisher Guy Cecala told USA Today, "If you can afford the higher payments associated with the shorter-term 15-year mortgage, there is no reason not to take one."

As the home buying process begins, mortgages will be something to consider thoroughly. If you think a 15-year mortgage is for you here are three benefits associated with them.

1. 15-year mortgages require careful budgeting
The reason a 15-year mortgage is more costly than its 30-year counterpart is that you have a shorter timeline for payment. With half the time to pay your mortgage off, it only makes sense that the sums will be larger from month to month. At current rates, a $250,000 mortgage loan for 30 years will cost around $1,230 per month. A 15-year mortgage at the same amount will run $525 more with a $1,755 monthly total. In order to pay closer to the 30-year sum, you would have to take a loan for around $75,000 less, according to The Motley Fool. Because of this, USA Today suggests that 30-year mortgages would benefit first time homebuyers because of the lower cost.

2. The interest rate is a full point lower than 30-year mortgages
The current rate for 30 years is 4.25 percent, as opposed to 3.25 percent for mortgage loans of 15 years. In the early years of paying off your mortgage most of those funds won't go toward the principal, but to paying off interest. The single percentage point will amount to about $200 dollars saved per month in interest. Based on the rates for the $250,000 mortgage mentioned above, a 15-year mortgage would accrue a total interest of $66,000. This is compared to $193,000 for a mortgage loan of 30 years.

3. 15-year mortgages build home equity more quickly
There is a significant difference in the equity built with a 30-year mortgage loan as opposed to that of a mortgage loan for 15 years. You will earn $13,150 in home equity for paying down the principal on a 15-year mortgage, as opposed to the decidedly lower equity built with a 30-year mortgage – around $4,200. The higher total acquired through a 15-year mortgage loan can be tapped into later on for home repairs or other financial issues.

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