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Benjamin Hulshof

Windmill Mortgage Services LLC

President/Mortgage Consultant

NMLS 216697 | LO.02757.000

(614) 362-6828

ben@windmillmortgage.com

www.windmillmortgage.com

15 vs. 30 Year Loan - Which is Better?
The answer is not a simple one yet it's worth taking the time to understand as the results may surprise you
Set Up and Compare Payments
Enter the Loan Amount = Then calculate the payments by entering the interest rates for both a 15 and 30 year loan below. The Average difference is .375%:
Term Rate
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Mo. Payment Savings
=
Total Cumulative payments made are shown here year by year along with the total payment savings realized with a 30 year loan:
Total Payments on 15
Total Payments on 30 -
Total Payment Savings
=
Total Principal Paid
Net Cost Difference & Reason #1
Tax Savings & Reason #2
The Bottom Line & Reason #3
Now, take the last step to see what happens when these savings are invested to earn a compounding rate of return. The advantage of a 30 Yr. loan can actually turn positive and that is reason #3:
Here, we'll determine the future value on the payment savings invested each month with the rate of return selected:
Investment yield
Payment Savings from above:
Total Value once Invested:
Here, we'll determine the future value of the additional tax savings invested each month with the rate of return selected:
Investment yield  
Extra Tax Savings from Above
Value of Invested Tax Savings
Total Invested Value of Savings
Final difference 15 vs. 30
When the numbers above turn negative, that evidences that the 30 year loan is actually less expensive than the 15 - hard for some to believe, but it's really just math, the benefit of tax deductibility and the magic of compound interest. I will of course be happy to walk you through how this works and to explore with you the best options for your preferences, peace of mind and suitability.

To make this visual, we'll use a graph and indicate the 15 year loan as the baseline (zero). We'll then impose the real cost difference of the 30 against it. The point at which you cross under the zero baseline is the point at which the 30 is more advantageous than the 15.This will vary with the interest differential, the investment rate selected and your tax bracket.
If the blue line crosses under the red line, this shows the point at which the true cost of a 30 year loan is actually less than a 15
Investment Yield
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0 15%
Tax Bracket
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0 60
Use the slide controls to see how changes in the investment yield and your tax bracket will influence the results
                                               
 
 
Extra Tax Savings Table for 30 Year Loan
 
      Accumulated Tax Savings        
      Current Year Tax Savings          
  Years      
    Investment Yield  
    Starting Value  
    1 Ending Value        
            1 2 3 4 5 6 7 8 9 10 11 12 13 14        
         
           
  2      
             
             
             
  3      
               
               
               
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  8      
                         
                         
                         
  9      
                           
                           
                           
  10      
                             
                             
                             
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        1 2 3 4 5 6 7 8 9 10 11 12 13 14 15  
  Total Invested Value  
 


The information contained in these calculators and reports is for informational purposes only. The use, presentation or receipt of this information does not constitute an offer to lend, an application, a Good Faith Estimate, or estimate of fees. Where included, interest rates are subject to change at any time and are not intended to be viewed as the current market rate. Annual Percentage Rates (APRs) can also vary at any time and are presented as approximations. APRs shown here are generally calculated conservatively and may be higher than the actual current market APR, which will be determined and disclosed upon request of a formal Good Faith Estimate or upon application for financing. Every effort has been made to assure the accuracy of the information and mathematical calculations; however, the provider makes no guarantee and maintains no liability for use of or reliance upon the results. Formulation of a scenario using these tools does not mean that the results are guaranteed. All loan products have guidelines, and those rules or tolerances will vary based upon many factors, including but not limited to loan to value ratios, income, employment history, debts, assets, creditworthiness, and underwriter's review and approval.

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