So my wife and I plan to buy a home in the Minneapolis area around November of this year. We are both gainfully employed, have low levels of debt (I have none, she has some minor CC debt, a few thousand left in student loans, and car loan) and have enough for 20% down. Our credit scores are both high (above 750 for her, low 800s for me) and we got pre-approved for a $275k loan at 3.65% (a few weeks ago, I know rates have dropped - additionally $275k is the high point of our housing range).
The monthly mortgage cost (pre-insurance & tax) is a few hundred less than what we pay for rent currently (using a 30 year fixed) but I'm wondering what benefits there may be w/ going with a 15% fixed? Obviously you pay less interest over time compared to a 30 yr fixed at the expense of higher monthly payments. Is there anything else I haven't considered about the pros of a 15 compared to 30? Admittedly I'd rather have the lower monthly cost but this is a house we would intend to live in for a long time (and obviously planning kids in the near future).
Congrats on the impending home purchase. If I were in your shoes I would consider a couple of things before making my final decision. Can you afford the 15 year payment currently, if one of you lost employment, became disabled etc.? Are you positive you want to live in/own that house for 15 years? If not you might consider a longer payment. Remember that you can always make extra payments towards the principal balance on the 30 yr loan, in fact many people make payments bi-weekly instead of monthly and just by doing that it will shorten the loan by a few years. I would also consider locking in your fixed rate once you find your dream home and are ready to buy as that will make the buying and financing process a bit more predictable. Typically you can lock in fixed rates when you are 30-90 days out from purchasing. I hope this helps, good luck!
I would agree with Curtis … you can always pay more on your mortgage if you choose to do so. However, should some emergency or calamity befall your family, you will not be able to pay less if you are locked into the 15 year mortgage payments.
You can certainly pay more on the principal, which will help you pay off your home sooner. You can also cut about 7 years off of a traditional 30 year mortgage by paying it twice per month. You don’t pay more you simply pay more often. This technique short-circuits the interest rate cycle.
An alternative … never pay-off your house. Reason … home equity is money that is not working for you. But be careful as this method is fraught with risk and emotional issues.
John Essigman www.bluecreek.net