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30 years or 20 years

301K loan amount to be refinanced. Bank is offering both 30yr or 20 yr at 4%. The 20year does not have a closing cost and get a lender credit of 1500 where as 30 year has a 1500 towards closing cost. If i choose 30yr mortgage, I save approximately 385 a month and if I decide to choose that extra payment, i can knock down the mortgage in 21 years and it saves me significantly lot of money. Am I missing anything here? Please advise. by inkayt_818_858 from Chicago, Illinois. Apr 4th 2012 Reply


Ray Hazucka (r.hazucka@mybbmc.com)
#66 ranked lender in Illinois - 36 contributions

There's several factors to consider 1) How many years are you into your current mortgage? 2) How long do you intend to hold on to the property? 3) Your stability of income. If your income is stable and you have enough disposable income, then it would make sense.What is the LTV on the property? If your underwater on the value, and you don't plan on staying there long term, you may need to factor that into your decision.

Apr 4th 2012
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Jerry Mlinar (jmlinar)
#19 ranked lender in Illinois - 6 contributions

It makes sense to go to a shorter term to pay down the principal faster. I don't know why they are not giving a credit at that rate though. I can give a credit of over $2,000 on a 20 year. As long as your score is 740 or higher? Thanks, Jerry Mlinar

Apr 4th 2012
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Shon Atabaki (ShonAtabaki)
#49 ranked lender in Washington - 95 contributions

I would add to the previous comments, that statitistically speaking, most homeowners never actually make the additional principal reduction payments, and as a result end up paying a lot more interest over the life of their loan. Additionally, as a rule of thumb 25% of the total interest on a 30-yr fixed mortgage is paid in the 1st five years of the loan. The forced 20-yr payment can solve both problems, however it is also nice to have the flexibility of a lower 30-yr payment "just in case" a cashflow need arises in any given month. Best of luck!

Apr 4th 2012
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Ibennett - Can you please show me the numbers how I would save $173K with a 20yr loan VS 30yr with an extra payment. Thank you.

Apr 5th 2012
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Joe Metzler (JoeMetzler)
#1 ranked lender in Minnesota - 3,930 contributions

15yr is the new 30. 20 is a nice in between number where the payment isn't too much higher but you get a ton of interest savings.

Apr 5th 2012
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Joe - Agreed. But, if I compare 20 to 30, I dont see any potential savings taking 20 when I can make the difference of 30 to 20 as extra payments towards 30yr mortgage. do you agree?

Apr 5th 2012
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Ibennett - yeah, that's the number I got with my calculations:) Thanks!

Apr 5th 2012
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