Tips for Choosing Between a 15-Year vs. 30-Year Mortgage
The first time you look at mortgage options when preparing to buy a home, you might be overwhelmed with the number of options available. For most people, the really hard question is how long to they want to be paying their loan: a 15-year or 30-year mortgage?
If you find yourself in this position, here’s what to consider when choosing between a 15- and 30-year mortgage.
How to Spot the Differences
Of course, you can probably guess the most obvious answer: a 15-year mortgage is paid off in 15 years and a 30-year mortgage is paid off in 30 years. Sure, you guessed that, but that’s just the tip of the iceberg.
What you probably don’t know is that longer loan periods also mean smaller payments, and smaller loan periods mean bigger payments. In fact, most people opt for a 30-year loan for just this reason. A 15-year loan can sometimes add as much as $500 to a mortgage payment. That can be a lot of money for someone to pay extra per month.
So what does this mean? If you don’t think a large payment is doable for you – especially if you worry about future expenses, potential job losses and unforeseen medical bills – then a 30-year loan is the safer option. If nothing else, it will provide you with a little peace of mind knowing your mortgage payment is relatively low.
Why Go for 15 Years?
What many homeowners forget to factor in is that a 15-year mortgage may cost more now, but it will save you major cash in interest payments down the road.
One of the biggest benefits of going for a 15-year loan is the potential savings. With a shorter loan, you pay less interest over time. You’ll pay for only 15 years as opposed to 30 years.
Interest rates between types of loans can vary too. On average, 15-year loans have slightly lower interest rates, so not only are you paying less in interest upfront, but you’ll save plenty of cash once you finish off your mortgage.
While you may have to adjust your budget to be able to comfortably afford your more expensive mortgage, you will save a lot of money over those 15 years. With the money you save, you can put towards retirement or even a second vacation home.
Why Go for 30 Years?
So by now it’s easy to see why some people go for 15-year loans, but what if that extra money just isn’t doable? How do you save money with a 30-year loan?
Many people try to pay off their mortgages as quickly as possible. When they have a little extra money, they put it towards their mortgage, sometimes paying off the loan in 25, 20 or even 15 years. By going with the longer loan, you’re protecting yourself against any financial problems in the future, but you’re always free to go back and pay off the loan early.
Whatever you decide, talk with your mortgage lender to decide what will work best for you. You have options so be sure to take the time to research and talk them out.