The Smart Mortgage Option Many People Ignore

Most people buying a home go with 30-year mortgages in order to produce the lowest monthly payment possible. But by doing so, they pay far more interest over the course of their loan than they have to. That has led many to consider an alternative to 30-year mortgages.

In the following video, Dan Caplinger, The Motley Fool's director of investment planning, looks at the 15-year mortgage and how it can save you thousands. Dan notes that most people don't use 15-year mortgages because payments are higher than for 30-year mortgages. But contrary to what many think, the 15-year mortgage payment isn't twice as much as the 30-year, because 15-year mortgages involve paying far less interest over the course of the loan. Moreover, rates on 15-year mortgages are substantially lower than on 30-year mortgages, with US Bancorp (NYSE: USB  ) , JPMorgan Chase (NYSE: JPM  ) , and Bank of America (NYSE: BAC  ) charging seven-eighths of a percentage point less, while Wells Fargo (NYSE: WFC  ) offers three-quarters of a percentage point in savings. Dan concludes that if you can afford it, getting your loan paid off sooner is an easy choice for many homeowners right now.

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  • Report this Comment On December 27, 2013, at 8:01 PM, edknipping wrote:

    Most banks don't have a pre-payment penalty for additional payments toward the principal balance. So get a 30 year fixed mortgage and make extra payments toward the principal and reduce your amortization schedule. This will allow you the flexibility of the 30 year payment, and when you are in a position to make the extra payment reduce the overall interest paid on the mortgage. I think this is a more realistic option for customers who are payment conscience.

  • Report this Comment On December 27, 2013, at 9:51 PM, TMFGalagan wrote:

    @edknipping - That's a reasonable strategy, except that you miss out on the lower interest rate. A percentage point might not sound like much, but it translates to tens of thousands of dollars in interest over the course of a typical loan.


    dan (TMF Galagan)

  • Report this Comment On December 31, 2013, at 1:18 PM, SophieM51 wrote:

    Before buying a timeshare, calculate the total cost of the timeshare, including mortgage payments and expenses, like travel costs, annual maintenance fees and taxes, closing costs, broker commissions, and finance charges. Then compare these costs with the cost of renting similar accommodations with similar amenities in the same location for the same time period. And remember, a timeshare is not an investment for profit or an interest in real estate that will likely appreciate over time. And if you try to resell your timeshare, it is unlikely you will get any way near what you paid for it:

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