Reverse Mortgages

With the majority of the mortgages, you own a greater amount of your home over the long haul. But there’s a type of mortgage that does the opposite, the reverse mortgage.

Pros: Senior homeowners can enhance their restricted pay by acquiring against their home value (the value of your home minus your current loan balance). They’ll receive tax-free, monthly payments or a lump sum from the lender.

Cons: The only downside to reverse mortgages is selling your part of the equity for cash. It sounds silly because you're putting a paid-for home in danger and welcoming in more obligation with the high charges that come along with a reverse mortgage. 

Now that we have identified the types of mortgages and discussed their pros and cons, hopefully, you can understand why it's best to get the 15-year fixed-rate conventional loan. In case you're prepared to begin the preapproval process, find a lender you can trust. Yet, on the off chance that you need more verification on for what reason that is the best type of mortgage, let's take a look at the math.

Mortgage Cost Comparisons

How about we analyze absolute expense on probably the most well-known types of mortgages—and see why the 15-year fixed-rate mortgage is the best approach.

In each scenario, we’ve assumed a $200,000 home purchase at a typical interest rate for each mortgage option.

30-Year ARM

Let’s say you come to the table with a down payment of 20% to avoid PMI and you finance the remaining $160,000 with a 5/1 adjustable-rate mortgage at an initial interest rate of 3.25%.

You’d start out paying $696 a month for principal and interest. After the first five years, we’ll say the rate bumps up by just a quarter percent each year. By the last year, your payment is up to $990, and you’d pay $147,962 in interest over the life of the loan.

30-Year FHA

With a minimum down payment of just 3.5% on a 30-year loan at 3.75% interest, your monthly payment would total $1,031. That includes $894 for principal and interest, plus $137 for MIP each month. You’d also pay $3,378 in upfront MIP at closing and $128,774 in interest over the life of the loan.

30-Year VA

Let’s say you put no money down on a 30-year mortgage at 3.5% interest. For this example, we’ll assume your VA funding fee is $4,300 and you finance it into your loan because you don’t have any extra cash on hand. That means your monthly payment would be $917 and your total interest paid would come to $125,963.

30-Year Fixed-Rate Conventional

If you put 5% down and finance the rest with a 30-year fixed-rate mortgage at 3.875% interest, you’ll pay $893 a month in principal and interest, plus PMI, which we’ll calculate at 0.5% (or $79/month) for this example. Your total interest paid would come to $131,642 by the time your mortgage is done, and your PMI would automatically drop off after a little over 8.5 years.

15-Year Fixed-Rate Conventional

If you put 20% down on a 15-year fixed-rate mortgage at 3.125% interest, your monthly payment would be $1,115 and you’d pay $40,624 in total interest. That saves you anywhere from $85,000 to $107,000 in interest charges alone! Imagine what you could accomplish with that kind of money in your pocket!

Bottom Line: 15-Year Fixed-Rate Conventional Loan Saves the Most Money

If we stack these five mortgage options against each other, it’s easy to see where the costs add up. For instance, the 30-year 5/1 ARM accrues the most interest of the bunch, while the 30-year FHA packs the highest fees.