Doron F. Eghbali Residential Real Estate Law Blog on Lawyers.com

Should You Choose 15-Year Fixed Rate Mortgage Or 30-Year Fixed Rate Mortgage?

Tuesday, August 31, 2010 by Doron F. Eghbali

Data indicate an increase in the number of people choosing to pay off their home mortgages faster. In fact, relatively more people chose 15-year fixed rate home mortgages for refinancing as opposed to longer periods between January to June of 2010. The question then arises if shorter loan period is suitable for every homeowner given the underlying fear of debt in homeowners and yearning to pay off the debt sooner. Let us explore this question further.

RELATIVELY MORE PEOPLE CHOSE 15-YEAR FIXED RATE HOME MORTGAGES

CoreLogic, a provider of financial property and consumer information, reported between January and June of 2010, 26% of the people who refinanced chose 15-year fixed rate mortgages as opposed to 15.9% of the same category of people in the whole 2009 year.

REASONS TO BE MINDFUL OF 15-YEAR FIXED-RATE HOME MORTGAGES

1. SHOULD HAVE SAVINGS WORTH ONE YEAR OF LIVING EXPENSES: Given the facts, 15-year fixed rate home mortgages increase monthly payments and the uncertain economy, it behooves people contemplating such move to have savings worth at least one year of living expenses.

2. SHOULD HAVE DEBT TO INCOME RATIO BELOW 35% OF GROSS MONTHLY INCOME: The other important factor to seriously contemplate is your debt to income ratio should be below 35% of your gross monthly income. This means you should add up all your expenses including mortgage payments, taxes, insurance, homeowner's association dues, auto and student loans and credit card debt. These expenses should be below 35% of your gross monthly income. For example, let us assume your gross monthly income, the money before paying for federal and state taxes and even payroll taxes, is $7,000. Then, you should choose 15 year fixed rate mortgage ONLY IF all your expenses DO NOT EXCEED $2450 (35% of $7,000).

3. SHOULD HAVE SUFFICIENT FINANCIAL CUSHION: The bottom line is if you have serious concerns about your economic outlook and do not have lots of savings and safe investments, then you had better choose 30-year fixed rate mortgage.

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DORON EGHBALI is a Partner at the Beverly Hills Offices of Law Advocate Group, LLP. He Primarily Practices Business , Rea l Estate and Enter tainment Law. Doron Can be Reached at: 310-651-3065. For More Information, Please, Visit: HERE.