Which is the wiser choice, a 15-year or a 30-year jumbo mortgage? Each has advantages and disadvantages, but for many buyers of executive estates, and other custom elite properties who plan to stay in the home or continue to own the property, the 15-year mortgage will be the better choice.
What are the advantages of a 15-year jumbo home loan?
A 15-year jumbo mortgage will be paid off in half the time of a 30-year loan. You will also pay significantly less interest.
Let’s take a $1 million property where you have put $200,000 down and you have an $800,000 jumbo mortgage.
At a 3.5% interest rate for a 15-year mortgage, you’ll make 180 payments of approximately $5,718, for a total of $1,029,240. Your total interest paid over the 15 years will be about $229,249.
Interest rates on 30-year jumbo mortgages are always half a percentage point or higher than 15-year rates on jumbo loans. At a 4.125% interest rate on the same $800,000 jumbo home mortgage, you’ll make 360 payments of approximately $3,877. This is nearly $2,000 a month less than the payments on a 15-year loan on your $1 million home purchase.
However, at the end of 30 years, you will have paid a total of $1,395,720. Your total interest paid over 30 years will equal $595,720.
What are the advantages of a 30-year jumbo home loan?
There is one advantage to the lower payments of a 30-year fixed jumbo home mortgage that some savvy buyers have taken advantage of. If you can afford the payments on a 15-year mortgage but select a 30-year amortization period, you are then free to invest the difference. How much money could you earn if you invested $2,000 a month over a 30-year mortgage period?
At even an anemic 2.5% rate of return in conservative savings investments, if you invested $2,000 a month for 30 years, you would have paid $720,000 and your investment value would be worth $1,077,247. Upping the rate of return to an average of 6% used by many financial planners, your investment would be worth $2,031,378.
You have many choices when it comes to a jumbo home mortgage. Much of your decision will rest on your plans for the home. Do you plan to stay in the home or hold onto it as an asset? Or would you prefer a longer mortgage amortization period, lower payments, and the option to invest your money? Your answers will help you decide whether to choose a 15-year or a 30-year jumbo home mortgage. Another topic to consider is how JUMBO ARMs come into play. This is another interesting topic of conversation for many savvy homeowners. Often times the interest rate on a jumbo ARM (adjustable rate mortgage) is much lower than a 30-year or 15-year fixed jumbo mortgage. These Jumbo ARMs are still fully amortizing loans but with fixed rates for 5, 7, or 10 years before they adjust. Many borrowers refinance or sell the property before that time and benefit from paying a lot less in interest charges over that time