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Fixed-Rate Mortgage at 15, 30 or 40 Years, Which to Get?

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Now this is a hard question that will rely 100% on your point of view and preference. Do you want to own the real estate property and/or house in a shorter period and pay less interest or in a longer and instead invest extra money into the stock market to gain compounded 7%-12% gains or more. Lets test some theories.

Fixed-Rate Mortgage Term Viewpoints

  • Shorter Term is Key – You will have higher monthly payments but equity will grow faster. You will actually own the home faster and would have had paid much less in interest.
  • Longer Term for Well Rounded Benefits – With a longer term you pay way more accumulated interest and equity builds slowly. You also have cheaper monthly payments money left over for other things.Prepaying a mortgage versus investing money in the stock market. You can invest the additional money that you save per month into the stock market by investing in Exchange Traded Funds (ETFs). You will gain around 7%-12% compounded annually and this will dwarf the 5%-7% interest rate that you are willing to knock down. In 10 years you would have accumulated far more money in return on investment (ROI).Another factor is that paying interest is a huge tax reducer that many individuals use. Even though you can pay off in full for your house, don’t, you will give up this huge tax reducer if you do.
  • Flexibility – As long as you don’t have any prepayment penalties, you can pay off you mortgage loan in much less time. If you get a 30 year, pay 10% of your monthly mortgage payment in principal and reduce your mortgage significantly. You can knock down a 30 year or 40 year down to 20 years or 15 years without problems.My Money Blog has a great post about choosing a fixed rate mortgage term. They even show the difference that extra payments towards principal will make.

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