We talk a lot about helping you achieve the “American Dream” here on the blog because it’s something that we wholeheartedly believe in here at Dream Builders Realty (heck, just look at our name). If you're new at this whole homebuying thing, one step in the financing process is deciding how long to finance your mortgage. 15 years vs 30 years. A long time versus a REALLY LONG TIME.
If you’ve heard anything about Dave Ramsey, you know he has a plan to help you take control of your money and part of his plan involves the fifteen-year vs thirty-year mortgage debate. We’re here to tell you that we agree with him when it comes to the benefits of a fifteen-year mortgage when considering your home loan. Here’s why.
You will not pay more on your 30-year mortgage even if you promise yourself you will.
Thinking that you are disciplined enough to set aside extra money each month to pay down your mortgage in less time is a lofty dream. Life will happen, other expenses will come up. You may start out making that extra payment until your car’s transmission goes out or your hot water heater breaks. The extra money will of course go to pay for your little (or not so little) emergency and you’ll promise yourself to get back on track next month, until you don’t. Thirty years later, you'll have finally paid off your mortgage, paying much more than you originally planned for a house you could have saved $100,000 on (oh, just keep reading...)!
15-year mortgages will pay for themselves in the long run.
It's really just simple math when you look at it, and the numbers don't lie. If you were to purchase a house for $225,000, without putting anything down, at an interest rate of 4.5% you would end up paying roughly $410,000 in the course of 30 years. But if you were to have done the same thing, adjusting the mortgage to 15 years instead you would pay a mere $309,000 for the same house. That is a savings of $100,000. Imagine what you could have done with an extra $100,000!? Want to know the difference in your monthly mortgage payment in a situation like that? About six hundred dollars. Finding an extra $600 each month for 15 years sounds pretty easy in the grand scheme of things when it will save you $100,000 in the long run, don't you agree?
You can start now even if you have a 30-year mortgage.
While we did mention earlier that it's a bad idea to go into the home buying process thinking you will pay more on your thirty-year mortgage because you don't think you can afford to do a fifteen-year mortgage, we still think you can make a change if you really want to. If refinancing is an option, you might want to consider it. In doing this, we mean refinance your existing mortgage to a fifteen-year mortgage and start saving money (not refinance and take money out on your home to buy that new car and then start "saving" money). However, if you have a great interest rate, refinancing isn't always necessary. Dave Ramsey's solution to this is to simply make payments as if you have a fifteen-year mortgage and your mortgage will pay off in fifteen years. Adjust it in your monthly budget, set it up as auto-payments or do whatever you have to do to make it a reality. Instead of wondering how you're going to pay the extra each month, start thinking about how to spend that extra $100,000 you could be paying to a mortgage company!
As Dave's saying goes, if you live like no one else now, you can live like no one else later. We hope you'll consider a 15-year mortgage when it comes time to buying a first home in Central Florida and reach out to us for help if you need it. That American Dream is attainable and we hope this information brings you one step closer.
To find out more, visit www.daveramsey.com