As credit requirements and down payment requirements become more feasible for first-time home buyers as well as conventional loan buyers, new home buyers can make more flexible and informed mortgage decisions about the type of loan that they would like to use making their purchase. First-time home buyers can enjoy the benefits of using a loan offered by Freddie Mac or Fannie Mae or even an FHA loan. These loans typically reduce the amount of money that must be brought to the table and make it more affordable to buy a home.
Other home buyers can also use an FHA loan if they meet the time period requirements between the purchase of their existing home and the purchase of a new home. Also, for the veterans, the VA loan is an incredible opportunity to become a homeowner and start establishing home equity. Regardless of the type of loan you use when you buy your home, you still have to make a decision about the terms of your loan. Interest rate, purchased points, ARM vs. standard, and time periods come into play when you are making your decision. Below are some of the reasons that using a 15-year loan vs. a 30-year fixed loan can be beneficial to your long-term financial situation.
15-Year Home Loans:
1. Pay Off Your Home More Quickly: If you are in a position to make a higher monthly payment (you have a lot of residual income each month, you have no financial responsibilities for multiple children’s expenses, you have a really low loan amount because you had a lot of equity when you purchased your home, etc.), you will want to consider using a 15-year loan. Even though the payments will be higher each month, you will save 10’s of thousands of dollars in interest. If you are near retirement age, you may want to pay off your home quicker so that you don’t have to make loan payments with a social security benefit check.
2. Faster Equity Accrual: Because the way that a 15-year mortgage is structured, you are making a huge dent in your principal and interest for every loan payment that you make. Because your payments are higher, you are also paying off more principle, more quickly, thereby creating “instant” home equity by being in a shorter-term loan.
3. Pay Less Interest Overall: Have you ever looked at a Federal Truth in Lending page and wondered how in the world you ended up with $120,000 interest on a $200,000 loan? With a 15-year mortgage, you pay significantly less interest over the life of the loan because you are cutting the time in half and increasing the amount you pay.
4. Lower Money Up Front: 15-year loans can require less money up front because they require a less stringent loan-to-value (LTV) ratio – 95% vs. 80%. This means you can finance up to 95% of the value of your loan. Also, 15-year mortgages typically have better interest rates because they deem the buyer more financially stable and responsible to make higher monthly payments.
5. Multiple Loan Types From Which to Choose: You can get many different types of 15-year loans – FHA loans, conventional loans backed by Freddie Mac and Fannie Mae, and VA loans. You can pretty much select to turn any type of loan into a 15-year mortgage vs. a 30-year fixed mortgage.
If you are in the market for a new home for sale in the St. Tammany Parish area, you may want to consider building a new custom home in the cities of Mandeville, Madisonville, Covington, and Abita Springs on the Northshore of Lake Pontchartrain. For more information about building a new home and using a 15-year loan, Contact Us at 985-626-7619 or E-mail Info@RonLeeHomes.com.