Paying Off Mortgage in 15 Years With a 30 Year Mortgage

I'm looking at the difference between and 30 and 15 year mortgage. I would like to pay my home off over the next 15 years. I can afford the payment for the 15 yr fixed, but i'm not sure I want to bind myself to that payment. Can I get the 30 year mortgage and pay extra each month (up to the amount of the 15 year payment) and effectively create a 15 year mortgage?

1 Answer

Yes, that's exactly the right way to do it. Through the years I've seen too many clients close on 15 year fixed rates and later have a "life-changing" event such as a loss of job, child going to college, divorce, etc where they end up stretching to make the payment. With rates as low as they are right now (9/2010), don't put yourself in any position where you would need to refinance in the future to lower your payments.

As long as the 30 year fixed rate loan does not have a prepayment penalty, you can make payments based on a 15 year amortization. The only down side of doing it this way, is that 30 year loans have a typically have a slightly higher interest rate than a 15 year fixed. The rate "spread right now is around .375% (3/8 of 1%) / year. (View current rates)

This is not a large difference given the flexibility you will be giving yourself. You might also want to consider a 20 year fixed. This has been a good compromise for many customers and does have a slightly lower rate than a 30 year fixed.

I really appreciate your thought process.........You will clearly make the right decision  !!!!