Convert Your 30 Year Mortgage Into a 15 year Without Refinancing

Getting a mortgage, especially the first time can be quite daunting. Between the monthly payment for the next 30 years and the amount you will be paying back in interest (which can often be more than the amount originally borrowed) it can be very costly. Getting a 15-year loan as opposed to a 30-year mortgage will save you a lot of money in interest, but you may not be able to afford the higher monthly payment that comes with a 15-year mortgage. Here is how you can get the benefits of a 15-year mortgage when you have a 30-year mortgage without having to refinance.

Let’s say you are the proud owner of a $300,000 30 year fixed rate mortgage with an interest rate of 6%. Your monthly payment will be just about $1,800 a month. If you had opted to get a 15-year mortgage instead, the monthly payment would be about $2,530 a month. The total amount of interest on the 30-year loan would be over $347,000 while the interest on the 15-year mortgage would only be $155,000. If you could get the 15-year you would save nearly $200,000 in interest. But you are afraid of that higher monthly payment. Maybe you’re not sure you could handle a $2,500 a month payment. Here’s an idea that may work for you.

Get the 30-year mortgage. You know exactly what your interest rate and monthly payment will be. Did you know you could always pay more towards your mortgage principal? This is known as a mortgage prepayment. Lets say you have recently received a raise, or maybe just finished off a car payment or student loan. You can then start adding payments to principal each month to your mortgage to pay it off quicker.

What I am saying here is if you started to add $730 a month to your $1,800 30-year mortgage payment, you will be able to pay your mortgage off in 15 years! What is great about this is that if you can make the higher payments towards your mortgage that is great. If something comes up where money is tight that month, then you can simply pay the $1,800 that month. Paying your mortgage off like this gives you a lot of flexibility and a great way to lower your mortgage interest costs.

So think about. If you are afraid of the higher payment of a 15-year mortgage, get a 30-year mortgage and when you are comfortable, begin to pay your mortgage like a 15-year by using a mortgage payoff schedule.