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15-Year Or 30-Year Mortgage?

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While shopping for a mortgage, you’ll make several choices, which will affect the monthly payment on the loan and how much you end up paying.

You have various options of 10, 15, 20, and 30-year mortgages. Of which, 15-year and 30-year mortgages are the most common ones.

Depending on your financial situation each term will have its benefits.

Using a mortgage calculator is one of the quickest ways to see the difference between a 15-year and a 30-year mortgage.

With a calculator, you get an idea of the cost of your monthly payment depending on the length of the loan, the interest rate you pay, and the size of the mortgage.

WHEN USING A MORTGAGE CALCULATOR YOU MUST UNDERSTAND

 
  • Principal amount
  • Down payment
  • Interest rate
  • Monthly payment
  • Total loan cost

WHAT IS A 15-YEAR MORTGAGE?

In simple terms, a 15-year mortgage is a home loan with a term that lasts 15 years.

Where if you follow the repayment schedule, you’ll have paid off your home in 15 years.

You can also make additional payments to the principal each month or from time to time and pay off the mortgage sooner.

You can choose between a fixed interest rate or an adjustable rate for a 15-year mortgage.

Initially, an adjustable-rate 15-year mortgage can be the more affordable option, especially when rates are very low during the time you apply for the loan.

But when the rates change, you might see your monthly payment increase. Make sure you can afford the monthly payment on your 15-year home loan, before choosing one.

When taking out a 15-year mortgage, you also need to put money down. A larger down payment, such as 20%, would mean a smaller mortgage, fewer monthly payments.

And you don’t have to take out private mortgage insurance (PMI).

WHAT IS A 30-YEAR MORTGAGE?

A 30-year mortgage also can be paid off before the full term if you pay extra toward the principal.

To take advantage of lower interest rates or better loan terms you can also refinance the mortgage.

Though a refinance might extend the mortgage term or reduce it.

After the introductory term, getting a lower rate on the loan can mean your monthly payments drop significantly.

If you took an adjustable-rate mortgage, you can refinance to a fixed-rate loan if rates fall in the future. That way, you can lock in a lower rate on your mortgage.

Depending on the price of the home you’re buying and the size of your down payment the monthly payment varies on a 30-year mortgage.

If you have put down less than 20% when buying a house you’ll need to pay PMI, until the principal is 80% or less of the home’s value.

Spreading the payments out for taking out a 30-year mortgage allows many people to buy a bigger or more expensive home than they could afford hence 30-year mortgages are more common than 15-year home loans.

WHEN DECIDING BETWEEN A 15 OR 30-YEAR MORTGAGE, YOU NEED TO CONSIDER

 
  • If you can afford a higher monthly payment
  • Whether you want to focus on saving cash
  • Or do you want flexibility
  • You want the lowest interest rate possible
  • If your choice is to buy a bigger or more expensive home
  • If you want to be free of debt sooner

THE BENEFITS OF A 15-YEAR MORTGAGE ARE

As the interest rates are lower on a 15-year loan, it saves money in the short term and the long term, because you’ll pay less interest with 180 payments, instead of 360.

Your home equity will build faster because you are paying more towards the principal each month.

With more equity, you have a choice to borrow against the house or to make renovations or pay for other big expenses, like your children’s college.

The total cost of a 15-year mortgage is substantially less than a 30-year home loan.

BENEFITS OF A 30-YEAR MORTGAGE

The monthly payment on a 30-year loan is often lower than the monthly payment on a 15-year loan.

You can have some more freedom with a 30-year loan than a 15-year mortgage and make adjustments to your budget more easily.

Homeownership can be attainable to a wider range of people because a 15-year mortgage wouldn’t be affordable to many because of the higher monthly cost.

Reference Source: Assurance Mortgage

https://www.compareclosing.com/mortgagenews/15-year-or-30-year-mortgage/

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