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Published: Wednesday, 2/20/2008

Your Mortgage Questions Answered

Q. How much money can I save by getting a 15-year loan instead of a 30-year loan?

A. You will save money in a couple of ways. Since a 15-year loan is for a shorter period of time, the lender will charge a lower interest rate. Currently the interest rate is about 0.375% lower than the rate on a 30-year loan. Due to the shorter loan term, you would also save in terms of actual interest dollars paid.

Total interest charges on a 30-year loan of $150,000 with an interest rate of 5.625% would be about $160,854. For a 15-year loan with an interest rate of 5.25%, total interest charges would be about $67,047, so you would be paying far less than half the interest with the shorter-term loan. An added advantage is that you also will build equity at a much faster rate.

So, if you should sell the house in five or 10 years, you would get more cash out of your house -- perhaps to use as a down payment on a new home -- than you would if you had a 30-year loan. Of course, the monthly payment will be much higher with the 15-year loan -- in this case, an extra $342 per month.

Q. I can afford the larger monthly payment required for a 15-year mortgage loan, so I should definitely choose this program. Right?

A. Maybe. Saving interest dollars makes good sense, but there are several questions you should consider before making such as decision.

Can this extra monthly amount be invested more profitably in the financial markets?

Do you rely on the tax deduction of mortgage interest payments to offset other sources of income when you file your taxes? Lower interest costs could mean a lower tax deduction. If you are 50 years of age, do you want to get a 30-year mortgage that wouldn't be paid off until you are 80, or would you rather have the house paid in full by the time you reach retirement age? These financial questions should be discussed with your trusted financial advisor before making any final loan decision.

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