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15-Year or 30-Year Mortgage Loan: A Guide for Washington Home Buyers

In a previous tutorial, we looked at the key differences between adjustable and fixed-rate mortgage loans.

If you decide to use a fixed  mortgage when buying a home in Washington State, you’ll have another set of choices. For one thing, you can choose between a 15-year or a 30-year home loan. There are pros and cons to both of these choices, and that’s what were going to cover today.

15-Year Versus 30-year Mortgage: A Matter of Priorities

As the name suggests, a fixed-rate mortgage is one that carries the same interest rate for the entire term or “life” of the loan. This is true whether you take out a 15-year or a 30-year fixed mortgage. In both cases, you have the benefit of knowing that your rate will not change.

The question is, should you use a 15- or a 30-year mortgage loan when buying a house in Washington State? What are the pros and cons of each option, and which one might work better for your situation?

Choosing the length of your home loan comes down to a question of priorities.

  • Smaller payments: If your primary goal is to reduce the size of your monthly mortgage payment as much as possible, then you’re probably better off spreading it out over a longer term. In this case, a 30-year loan might be the best option for your Washington State mortgage.
  • Less interest: If your main objective is to reduce the amount of interest paid over time, you might be better off with a 15-year fixed-rate mortgage. Borrowers who choose this option tend to qualify for lower rates. Additionally, you are paying interest for a shorter period of time compared to a 30-year loan. So you could save a significant amount over time.

Those are the main pros and cons of using the 15-year or the 30-year fixed mortgage loan in Washington. A shorter term gives you a higher monthly payment but the chance to save a lot of money over time. With the longer 30-year term, you’ll have a lower monthly payment but will pay more interest over time. So there’s a tradeoff.

Washington State Home-Buying Scenarios

Here’s a real-world scenario using average mortgage rates at the time this article was published.

During the first week of August 2017, the average interest rate for a 30-year fixed home loan was 3.93%. This is based on the nationwide lender survey conducted by Freddie Mac. During that same week, the average rate for a 15-year fixed mortgage was 3.18%. Generally speaking, 15-year loans tend to have lower rates when compared to their 30-year counterparts.

Using the averages mentioned above, let’s assume two borrowers both take out a mortgage loan for $200,000. With a basic mortgage calculator, we can determine how much the monthly payments might be, and also how much they would pay in total interest over time.

  • Borrower ‘A’ uses a 30-year fixed mortgage with an interest rate of 3.93%. The base loan amount is $200,000. This would result in a monthly payment of around $947. Borrower ‘A’ would end up paying $140,839 in total interest over a 30-year period.
  • Borrower ‘B’ uses a 15-year mortgage with an interest rate of 3.18%. Again, the base loan amount is $200,000. This would result in a monthly payment of around $1,399. Borrower ‘B’ would end up paying around $51,738 in total interest over a 15-year term.

This example shows the advantages of using either of these mortgage options to buy a house. Home buyers in Washington State who want to minimize their monthly payments would probably want to choose the 30-year fixed mortgage option. Home buyers who could afford a higher monthly payment and want to reduce their total interest costs might consider the path taken by borrower ‘B,’ using a 15-year fixed mortgage to buy a house.

Let’s explore your options! We can help you explore your financing options and choose the right type of home loan for your particular situation. We are a local, family-owned company based in Bellevue, Washington. Please contact us with any mortgage-related questions you have, or to receive a rate quote.

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