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15 Year vs 30 Year

Why the Banks Don't Want You in a 15 Year Fixed.

The 15 year fixed mortgage is a borrower's best friend.  The amount of interest that the bank makes is almost cut in half.  This means that your principal is reduced at an accelerated rate.  In a time of Wall Street uncertainty, borrowers need to strategize how to supplement their retirement.  A great way to do this is a free and clear home.  With rates much lower on a 15 year fixed (click here for current rates) borrowers may be surprised how little the monthly payment increases.  When factoring in how much of the payment goes to principal reduction your payment may be less than your paying now.
 
Here is an example of a borrower on a 30 Year fixed at 6.00% who took out a $200,000 loan 5 years ago.  The current P&I payment is $1199/mo, with Principal = $267/mo. and Interest = $931/mo.  To this point the borrower has paid the bank almost $60,000 in interest and the bank has reduced the principal by only $16,000.  Not that great of a return on the borrower's money.  For every dollar you pay the bank only $.28 goes to your loan balance. 
 
Now lets look at this same example if the borrower were to convert to a 15 Year Fixed Rate.  The borrower now owes $184,000 so he refinances that into a 4.5% rate.  The new payment increases to $1407/mo.  This is approximately $200 more than his current payment.  This is where it gets interesting.   This payment is applying $717/mo towards interest and $690/mo. to principal on day one.  Even though the payment goes up $200/mo. the amount of principal reduction almost triples. This means that the extra $200/mo you are paying is being matched by the lender dollar for dollar in principal reduction. For every dollar you pay the lender $.49 goes back to you by reducing your loan balance.  This is almost double the rate of a 30 Year fixed.  After 5 years of this strategy the borrower's balance will reduce $.63 for every dollar paid in on the mortgage.  At this point your keeping more money than the bank is making in interest.  You’re well on your way to the Real American Dream, a free and clear home!  Check our rates and see why Interstate is your price leader for responsible lending. 
 
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25062 South 190th Street, Queen Creek, AZ  85142
Office:  (480) 553-5555
ryan@interstatemortgage.net
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