Breaking the 15-Year/30-Year Mortgage Duopoly

NEW YORK (BankingMyWay) -- When applying for a mortgage, should you pick a 15-year or 30-year loan? In a perfect world, you might pick something else -- 12 years or 23 years, for instance -- to get just the right combination of affordable payment and minimal interest expenses.

Now Quicken Loans has launched an unusual mortgage product called YOURgage that allows borrowers to do just that. While it's promoted for people who are refinancing, it could be just as useful for those who are borrowing for a home purchase.

A shorter term can produce two types of savings.

With a 15-year loan at, say, 3.5%, the borrower would pay $715 a month for every $100,000 borrowed, and interest would total about $28,700 over the loan's life, a huge saving from the $61,700 in interest on a 30-year loan at the same rate, with a payment of $450.

With the shorter loan term, borrowers save in two ways: the total interest payments being much lower, as well as a lower rate being offered to the 15-year versus 30-year loan. Lenders offer this break because they face fewer risks when the term is shorter. Currently, the 15-year loan averages about 3.1%, while the the 30-year is at 3.7%, according to the BankingMyWay.com data.

The Quicken YOURgage product allows the borrower to choose any loan term from 8 to 30 years. Reducing the term substantially will get you a lower rate as well as the savings from fewer payments, but two terms that are relatively close will carry the same rate.

The product is aimed at people who are refinancing and don't want to go from, for example, a loan with 23 years left to a new loan for 30, as the seven extra years of interest payments could well wipe out the savings from refinancing to a lower rate.

According to a check of the Quicken product's online calculator, on a $100,000 loan you would pay 3.625% for all terms from 21 to 30 years, but 3.5% for 20 years, 3.125% for 13 and 2.875% for eight (rates can vary each time you consult the calculator.)

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