If you are purchasing a new home, chances are that you need a mortgage loan. Obtaining a mortgage can seem complicated and overwhelming. You need to apply for the loan, and you want to make sure you can afford the payments. You also need to choose a reputable lender whom you can trust. In addition, you will need to decide the type of loan and the term of the loan that best fits your needs. One of the decisions you will need to make is whether you want a 15-year term or 30-year term.
Benefits of 15-Year Mortgages
With a 15-year mortgage, your home will be completely paid in 15 years. Some of the main advantages of this type of mortgage include:
- Shorter life of the loan: You will repay the loan 15 years earlier than a 30-year mortgage. Since your mortgage is probably your largest bill, paying it off will be a huge relief.
- Lower rate: Shorter terms mean lower interest rates. You will pay much less to the lender over the life of the loan.
- Lower cost of mortgage insurance: You are considered less risky with a 15-year mortgage, so your insurance premiums will be lower.
- Save money: You could save thousands of dollars by getting a 15-year mortgage. In fact, it is possible to save a hundred thousand dollars when you have a shorter term.
- Better retirement: Because the house payment is such a large expense, many people choose to retire after they pay off their mortgage. If you have a 15-year mortgage, you could possibly retire earlier. This will be a big load off of your finances, so you can enjoy retirement.
- More equity: Because you are making larger payments, your equity will build up quicker. This could be a huge benefit if you ever want to get a home equity loan or a cash out loan.
Benefits of 30-Year Mortgages
Even though the term of the loan is longer, 30-year mortgages have benefits as well. Some of the advantages include:
- Lower monthly payments: Your monthly payment amount will be lower with a 30-year mortgage. This could be beneficial when you are on a strict budget. You could use the extra money on other things.
- You can build your savings: If your monthly payment amount is lower, you could put the extra money into a savings account.
- You can invest: You can find a good investor who can put your money in an investment account that can build up.
Difference in Monthly Payment
Just because a 30-year loan is twice the amount of a 15-year loan does not mean your payments will be twice as much if you go with a 15-year loan. The payment amount with a 15-year loan could be $300-$500 higher than a 30-year loan. Make sure you can afford the payments if you choose a 15-year loan. If you get in trouble and cannot make your payments, you need to research the mortgage debt relief act to see if you qualify.
The bottom line is that both mortgages have advantages, so you need to choose the one that is right for you. Research your options and find the best interest rate available. You can then feel confident that your mortgage needs are met.