Fifteen Year Mortgage
Wondering if a shorter-term mortgage makes sense? Understanding the pros and cons of a 15-year mortgage can help you decide if this is the right option for you. While 15-year mortgages are not for everyone, if you can afford a significant higher mortgage payment, the interest rate is typically much lower and you’ll build home equity faster.. Because you’ll pay less in interest with a 15-year mortgage, you’ll save money during the life of your loan. Paying off your home in half the time of a traditional 30-year mortgage does sound great, you must admit!
The Pros
The biggest advantage to a 15-year mortgage is saving money with a lower interest rate than a 30-year loan. Not to mention you’ll also pay the loan off faster, here’s an example:
For a $350,000 loan with a 10% down payment, your rate for a 30-year loan might be around 6.75%. For a 15-year mortgage, it would be lower, say 5.25%. You’ll easily pay a couple hundred thousand dollars in interest over 30 years. The same loan at a 15-year term will cost you only about a third of that amount in interest—a considerable savings! (These figures exclude other costs like homeowners insurance and taxes.)
With higher monthly payment toward the principal, you’ll build home equity faster with a 15 year loan. You can use that equity for a home equity loan or line of credit. This can be used for pretty much whatever you desire. To pay for things like college, renovating your home OR buying investment property.
Not only will you build equity faster, but you’ll also pay off your home in half the time. For many people, a big financial goal is the peace of mind and security that comes with knowing their home is fully paid off.
The Cons
Because you’ll be paying off your home in half the time you’ll need to analyze and really qualify if your budget will allow you to afford such a large payment. It might make more sense to keep the lower, fixed payments of a 30-year loan and pay extra toward principal when you can afford to. This strategy will still help you pay off your home a bit faster, yet still offers some flexibility in your required monthly house payment. Keep in mind that investing more of your monthly budget into your mortgage means additional funds might not be available for other goals, expenses and hobbies.
We’re Here To Help
In short, a 15-year mortgage is a great option if you can afford higher monthly payments and still meet your other monthly financial obligations. At Good Thing Realty, we can help guide you through the home loan process. Whether you’re looking for that first home or you’d like to start shopping for investment properties, we’re here to help.