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Picking the right fixed-rate mortgage
By: Staff

By Peter McDougall-

When choosing a mortgage, which loan term is right for you?

If you’re buying a house, chances are you’ll look for a 30-year fixed-rate mortgage (FRM). But for those refinancing an existing mortgage, there are more choices. For example, should you go with a 15-year FRM to pay off your home more quickly? And though a 30-year FRM may cost more in the long term, will the cheaper monthly payments make it a more attractive option?

Which loan term is right for you depends largely on your financial situation and how many years are left on your first mortgage. Here are a few things to consider when making your decision:

Interest rates are usually lower for a 15-year mortgage than a 30-year loan. In North Carolina, for instance, Wachovia, Sun Trust Bank and Wells Fargo offer 30-year FRMs at 5.0%, 5.625% and 5.375%, respectively. The same lenders offer 15-year FRMs at just 4.75%, 5.0% and 5.0%.

But bear in mind that lower rates don't necessarily mean smaller payments. Fact is, even if interest rates are slightly higher on a 30-year loan, the monthly payments will be lower because your payments are spread out over a longer period. How much lower? Take the mortgage offers from Webster Bank in Massachusetts. The bank offers a 15-year FRM with an interest rate of 5.0% and 5.25% for a 30-year FRM. If you refinanced an existing $100,000 mortgage, your monthly payments would be $791 with the 15-year loan and just $552 with the 30-year loan. That's a difference of $239 a month, or $2,868 a year.

Despite lower monthly payments, you'll end up paying more for a 30-year loan. Based on the example above, a 30-year loan will cost you an extra $56,452 in overall interest -- $98,795 compared with $42,343 on the 15-year loan.

Best advice: Unless you need the lower monthly payments of a full 30-year loan to stay in your home, go for the shorter loan. After all, a longer-term loan may save you money in the short term, but end up costing you big bucks down the road.

For more rate offers in your area, check out and enter your ZIP code to find out the best info for your area.


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