Mortgage Update: The Lure of the 15-Year Mortgage

While the typical mortgage term is 30 years, mortgages are also available in 20-, 15-, and even 10-year terms. The shorter the term, the lower the interest rate. Many financial advisors recommend shorter term mortgages since paying it off more quickly can save many thousands of dollars in interest.

Those financial advisors don’t live in the wonderful place we call home – the Bay Area. As Bay Area residents, we’ve all made the choice to pay a premium for housing to be able to work and play in one of the best places on earth.

The savings of the 15-year mortgage are appealing, but the higher payments are unaffordable for many homeowners and the interest savings come primarily from paying it off more quickly, not the lower interest rate. If you made the equivalent of a 15-year mortgage payment against a 30-year mortgage, you
would pay it off in just over 16 years.

For those who have been in their homes a long time and have paid down their mortgage, a 15- or 20-year mortgage may make sense.

For the rest of us, we can feel better about our 30-year mortgage by remembering:

• If we are willing and able, we can make extra payments to enjoy interest savings

• In the event of a financial challenge, we can make just the required monthly payment as op­posed to a higher payment
of a shorter term mortgage

• It is more important to direct funds towards emergency savings and retirement than to our mortgage, as those
sources are accessible if the funds are needed

• Current interest rates on 30-year mortgages are lower than they’ve ever been – lower than 15-year mortgage rates
were less than 5 years ago.

• Paying our mortgage over time gives a higher mortgage interest deduction on our income taxes


For great rates and thoughtful advice, contact Julia Demeter or Melissa Milton at Commerce Home Mortgage.