Question

Your Aunt Edna just got back from the bank. She is buying a home in Daly City. She said that the banker presented her with two different mortgages, a 15 year mortgage and a thirty year mortgage. She looked at the schedule of payments and determined that over the life of the mortgage she would pay a lot more interest on the thirty year mortgage than on the 15 year mortgage and so is inclined to opt for the 15 year mortgage. Is there anything that might be wrong with her logic?

Answer 1

No, there is nothing Wrong in the Logic That 30 Year Mortgage will cause high amount if interest Payment.Because a 30-year mortgage has a longer term, monthly payments will be lower but interest rate on the loan will be higher, Due to time value of money.

On the other hand, a 15-year mortgage has higher monthly payments. But because the interest rate on a 15-year mortgage is lower and paying off the principal faster, and interest payment will be less over the life of the loan.

For e.g- We take mortgage loan for the amount $ 250000

	15 Years	30 Years
Number Of payments	180	360
Avg. Int rate	4.18%	4.36%
Monthly payment	$ 1871.85	$ 1305.63
Total Interest Paid	$ 86933.32	$ 220023.34
Total Principal Paid	$ 336933.32	$ 470023.34

Therefore from above example we can Understand That Mortgage loan of 30 Years will Be more costlier than of 15 years.