While 30-year mortgages may be the norm, it’s not the only option. In fact, some home buyers prefer a 15-year mortgage. How do you know which one is right for you? It depends on your financial situation and your current and long-term goals.
Each option has their pros and cons, so let’s compare the two and weigh the benefits.
So many people, especially first-time home buyers, find comfort with 30-year mortgages. One of the biggest reasons is because the loan is spread out over a longer period of time, which typically means you would have a lower monthly payment compared to a 15-year mortgage. In correlation, you could also build up your savings since you’re not putting as much money into your mortgage payment.
Depending on your finances and your goals, a 30-year mortgage could also help you to qualify for a larger loan. That means if you’re trying to buy in a seller’s market or buy a home that just has a larger sales price, you’re more likely to qualify.
And lastly, let’s say your income changes over time. You could either refinance your mortgage so they’re aligned or you could make additional payments when it makes sense.
Oftentimes, home buyers want the best interest rate before deciding on a mortgage. One of the benefits of a 15-year mortgage is a lower interest rate because lenders deem it less risky. While the rate difference may be small, it adds up over the years.
Another benefit is a lower cost to borrow — in other words, you would pay tens of thousands of dollars less in interest with a 15-year mortgage option compared to a 30.
Equity is also a big deal when it comes to your home. After all, it is your biggest investment, so it’s great to see your value increase over the years. And since you’d be paying more toward your principal with a 15-year option, you would build equity much faster while also paying off your loan quicker — some would say 15 years quicker 🙂
While this covers some of the benefits of each option, it’s best to speak with a loan officer who understands your goals and can help lay out the details of both for you. That way you will know exactly what you’re getting into and can properly prepare for a mortgage that’s right for you.