Own your home much faster and pay less interest
A fifteen year mortgage is for people who can afford a much higher monthly payment. True, you will pay off your home faster and pay less interest, but the tradeoff of higher payments makes it unappealing to some homebuyers. If you do have enough reliable income to comfortably make higher payments, you can literally save thousands or even tens of thousands of dollars in interest!
What is a Fifteen Year Mortgage?
A 15-year mortgage typically has a fixed interest rate, which keeps the principal and interest rate the same for as long as you hold the mortgage. Your home will be paid off completely in 15 years if you make all the payments on time. Your taxes and insurance costs can change, though, so fairwarning.
Pros of a Fifteen Year Mortgage
- Build equity faster – With its lower interest rate and higher payment amount, a 15-year fixed-rate mortgage builds home equity faster because you pay down the principal quicker.
- Shorter path to full homeownership – Many people just want the peace of mind of owning their home outright. What matters more to them than a 50% higher payment, is a feeling of safety from knowing that their home is fully paid off.
- Long-term savings – There is less risk on a 15-year mortgage, so lenders charge a lower interest rate, and that also means you pay half as many years of interest.
Cons of a fifteen year mortgage
- Larger monthly payments – You have to be absolutely sure of your income and have great job security to set yourself up for 50% higher mortgage payments. On top of this monster payment, you also have to pay property taxes, insurance, general expenses, savings and, if you put less than 20% down, mortgage insurance. This could make it hard or next to impossible to respond to emergencies and other needs. Even if numbers seem to work now, a mortgage is a commitment and getting out of it means selling, refinancing or foreclosure.
Still Unsure? Here’s Plan B
If you’re just too unsure to take the plunge on extremely higher payments, choose a mortgage with a longer term and then just pay extra toward the principal each month when making your payment. This way, you’re still paying extra each month and paying down the mortgage more quickly, but you’re off the hook if there’s a month where you can only make the regular payment amount!
Is a Fifteen Year Mortgage Right For You?
If you can afford the higher payment while still saving and investing for retirement, then this is a great borrowing tool! If paying off your mortgage faster to satisfy your need for feelings of independence, safety and accomplishment is what you desire most, then this is the mortgage for you.
However, if your income is uncertain or could change periodically, you should probably avoid the 15-year mortgage. Unless you have extra funds saved or have another realistic plan in place to cope with income reductions, this type mortgage is not for you.