Is Getting a 30 Year Home Loan a Good Choice?
Getting a 30 year home loan used to be a popular choice among most home owners. The reason being the total home loan payment is being spread out across a longer time period so you can pay less each month. Plus with interest rates fixed for the 30-year period, it seems a good deal. Or is it?
The one big benefit of a 30-year home loan is that you pay lower monthly payments however, you need to take into consideration that you actually pay more in interest than someone who has a 10-year home loan. So the longer the home loan period, the more you actually pay.
To illustrate the difference the home loan period makes, here is an example. Lets say for a 30-year home loan, the interest rate is 7%. The home loan is $100,000. Thats means your monthly payment is about $665.00. It also means the interest paid for the 30 years is around $140,000. Now suppose for a 15-year home loan with the same interest and total home loan amount. The monthly payment is around $870.00 and the total interest over 15 years is around $56,800.
So by opting for the 15-year home loan, you actually save $83,200 in total.
A longer...
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