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VA loan 30 Year or 15 Year…Which is Best?

By: Grant Moon 10/28/12 11:20 am

VA loan 30 Year or 15 Year…Which is Best?

 

When you apply for a VA mortgage one of your considerations is how long you want your loan term to be. Should you take a 30 year loan or is a 15 year loan your better choice? There are a few considerations when evaluating the two choices but it all comes down to things: monthly payment and interest charges.

If you want the lowest monthly payment then you want to select the 30 year loan. The longer the payoff period, or amortization term, the lower the payments. Conversely, the shorter the payoff term the higher the payments.  What’s the difference?  Let’s look at a 30 year fixed rate payment and a 15 year fixed rate payment on a $300,000 mortgage at 3.50 percent for the 30 and 3.25 percent for the 15 year loan:

30 year                 $1,347 per month

15 year                 $2,108 per month

15 year fixed rates will always be about one-quarter percent lower than their 30 year counterpart, but even with the lower rate, the monthly payment difference is considerable.  In this example, the 15 year fixed rate is $761 higher than the 30 year loan.  So who would want a 15 year loan at the higher payment?  Those who want to save on long term interest.  Let’s now look at the amount of interest paid on both of those loans over the course of the loan period:

30 year                 $184,920 interest paid

15 year                 $79,440  interest paid

By selecting the 15 year over the 30 year mortgage, the borrower saves more than $100,000 in mortgage interest over the life of the loan.  But don’t stop there.  Although you may not hear of them very often, there are also 25 and 20 year VA mortgage loans which fall between the 30 and 15 year choices.

25 year                 $1,501 per month and $150,900 interest paid

20 year                 $1,701 per month and $108,240 interest paid

So which is best, the 30 year or the 15 year? Maybe it’s neither.  Maybe it’s a 25 or 20 year fixed rate.  You have a choice. Run your own numbers and see what’s best for you!

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