The FHA 15 year fixed program has several benefits for Orange County, CA FHA borrowers. While it does result in a higher payment because it is fully amortizing, it can save thousands of dollars for the borrower in the long run.
Of course, the downside is the payment is higher on a 15 year fixed. But with a little budgeting, the savings will be worth it. Here’s an example. Let’s assume an Orange County home buyer purchases a home for $300,000. Assuming a 3.5% down payment, the loan amount, including the Up Front Mortgage Insurance Premium, would be $294,566. Lets also assume a 30 year fixed interest rate of of 5%. Along with the Monthly Mortgage Insurance, the payment would be $1,716. (Interest = $1,228, Principal = $353, MMI = $135). Now lets look at the 15 year fixed. Since we assumed a 5% rate on the 30 year fixed, we’ll go with 4.5% on the 15 year fixed. The MMI will be .25% instead of the higher .55% that the 30 year fixed has. The payment, including MMI, would be $2,314. (Interest = $1,104, Principal = $1,148, MMI = $62). Notice that the borrower saves $124 per month in interest, plus $73 per month in MMI. That’s $197 a month in savings. The payment is only higher because of the amount going towards principal. Also, with the 15 year fixed, the MMI will fall off after 5 years. With the 30 year fixed, the MMI will remain a part of the loan until the 11th year, unless extra principal payments are made along the way.
In the 30 year fixed example, there would be approximately $298,000 in Finance Charges (interest, MMI) paid over the life of the loan. In the 15 year fixed example, there would be approximately $123,000 in Finance Charges over the life of the loan. This will result in savings of over $175,000 in Finance Charges by choosing the 15 year fixed rather than the 30 year fixed.
That is a lot of money! While definitely not for everyone, the 15 year fixed can be a great program for someone who wants to pay off their mortgage quickly. Of course, the most important thing to do before jumping right into a 15 year fixed, is make sure the program fits in with your budget and financial goals. And of course, have an experienced Orange County FHA Loan Expert prepare detailed loan scenarios that will let you know what the costs and benefits are.
This will work with the FHA Streamline Refinance program as well. Because the payment would most likely be increasing, the lender would need to calculate debt to income ratios, but as a Streamline Refinance program, there would not be an appraisal. Orange County, CA VA loan borrowers should also consider the 15 year fixed.
Authored by Tim Storm, an Orange County, CA Loan Officer – Please contact my office at Trust One Mortgage for more information about an Orange County, CA home loan. 877-786-4243 x 7.
Call our office today and see how we can help you and your family. Ask for your Free First Time Home Buyer Report.
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*Trust One Mortgage Corporation is licensed and supervised by the California Department of Real Estate (“DRE”), License # 01087829
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