15-Year Fixed Mortgage Rate/30 -Year Fixed Mortgage Rate
When Paul Entin and his wife, Shannon, found out that they were expecting a baby in 2004, they decided that they needed a home with more space. So, they had a friend who was a realtor help them find a house for their growing family. It didn't take them long to find what they were looking for - they found a 1,978 square-foot house built in 1975 with four bedrooms and two and a half bathrooms.
"It had a great home office space, and the previous owner had a stack of plastics industry magazines in the basement so I felt it was going to be a good move, since I do marketing and advertising for the plastics industry," says Entin. The home, in rural western New Jersey, is located on a secluded hill with five acres of woods, Entin says. With the perfect home at their fingertips, the Entins made their next move: Applying for their mortgage.
Like many homebuyers, the couple had originally planned on getting a traditional 30-year mortgage. But when it came time to sign the papers, they realized the lender had made a mistake, quoting a 15-year fixed rate mortgage instead. The Entins sat down to crunch the numbers. They carefully calculated and compared the costs, benefits, and drawbacks of the 30- and the 15-year mortgages. After all that, the decision to roll with the mistake on their mortgage turned out to be a lot easier than expected. "I don't recall anything appealing about being in debt for 30 years," he adds."At the time [in 2004], we simply thought that's what you do and hadn't really considered other options."
One major draw of the 15-year mortgage was the savings in interest over the life of the loan, Entin explains. He adds, "we decided it would be great to have the house paid off before our kids [now 15 and 9] go to college. And while the monthly payments were undoubtedly higher, Entin says they were willing to work more in order pay off their mortgage faster.
Entin is president of epr Marketing, Inc., and Shannon is a travel writer. Together, they have a combined salary of just under six figures annually. So, after careful consideration, the couple stuck with the mistake and got their first 15-year mortgage in July 2004. It was a $296,000 loan with a 5.75 percent interest rate, calculated after putting 20 percent down on their $370,000 home in rural New Jersey. After paying off their mortgage, they will have paid $146,442 in interest.
If they had gotten a 30-year fixed rate mortgage, their interest rate would have been around 6.06 percent, according to Freddie Mac. And they would have paid $346,997 in interest by the end of the loan. So, by choosing a 15-year fixed loan, the homeowners have saved themselves more than $200,000 in interest. The error on their mortgage was a blessing in disguise, helping them save hundreds of thousands of dollars.
Once they decided to keep the 15-year mortgage, the Entins made a conscious decision to save money to apply toward their higher payments. Their secret to coming up with the extra money? Entin says it's all about choices. For example, Entin says they don't take extravagant vacations, usually only planning for a cheap summer camping trip and a winter ski trip, either to Vermont or to Colorado. On top of that, he's discovered another way to save on family holidays.
"More recently, we realized that if you vacation with other families then everyone can save a lot compared to getting a hotel or house on your own, because you're splitting the cost among more people," he explains. Plus, when they do take a trip, they try to travel during off-peak times.
Additionally, Entin says paying off a mortgage is all about discipline and desire. "It's really not that hard to save $100 a month on groceries for a family of four just by cutting out junk food," he explains. "Even smoothies for two after going to the gym three times per week adds up to more than $100 a month."
In 2011, the couple made another move to help save them money - refinancing to a 10-year fixed rate mortgage. "Rates had dropped to the point that it made sense to refinance," Entin says. "The payment for the 10-year mortgage was comparable to the 15-year loan since it was a lower rate," he adds. "Just a few dollars more but not so much that we'd feel it day-to-day."
The new mortgage, for $224,800, now carries a much lower interest rate of 3.75 percent. Their $3,060 monthly payment includes principal, interest, homeowners' insurance and taxes. When all is said and done, the couple is right on track to paying off their mortgage by 2019. A decade after the mortgage blunder, Entin still stands by the choice to go with a 15-year loan instead of a 30-year loan. "I don't like fixed costs. I don't like paying interest, and I don't like being tied down to a monthly payment," Entin says. Plus, he adds that one of the main benefits of paying off their mortgage within 15 years is that once the house is paid off, he and his wife will have more financial flexibility and be in a stronger position to weather an economic downturn. "We'll be in a better position to pay for college for our two kids, and we'll have more flexibility in case we want to move," Entin adds.
For the Entins, a 15-year mortgage turned out to be the right choice. But whether you can afford to pay off your house in 15 years or 30 depends on a lot of factors - from your finances to your long-term goals. If you haven't taken the plunge yet, speak to a lender who might help you better understand your options. And you could learn from this couple's mistake and might be able to save on your mortgage, too.
If you are in the market for a new house and would like information on homes for sale, or are first time home buyer not working with a Realtor and would like to schedule a consultation with a qualified Oakland County and Macomb County Realtor, please complete the Lang Premier Properties contact form to have a real estate agent contact you.
Lang Premier Properties are Birmingham Realtors specializing in Oakland County Real Estate. Stephanie is an agent with Max Broock in Birmingham, Michigan. See what past clients have to say about Stephanie Lang. Lang Premier Properties looks out for your best interests when you purchase a new custom luxury home. We always recommend working with an experienced luxury real estate agent when buying a new luxury estate.