Article courtesy of Realtor.com
It’s not always easy to think even a year or two into the future but when it comes time to apply for a mortgage we are often looking at a commitment that spans 30 years. While the 30-year loan is standard in the industry it isn’t the only option for homeowners and there may be some real advantages to having a shorter mortgage.
A 15-year mortgage will have you making higher payments for a shorter period of time as compared to making smaller monthly payments over a longer period of time. Making this decision depends a lot on where you are in your life.
There are some disadvantages for a shorter mortgage. They may also be harder to receive approval for than other mortgages. It may also be difficult to make a larger payment and it is important to continue to save for retirement and for emergencies even as you pay down your mortgage. You don’t want to rely on your home as your sole source of savings.
Below are some of the key benefits of both terms. For this exercise in order to compare apples to apples we will assume that both mortgages are fixed but there are also adjustable rate mortgage products available.
Benefits of a 30-Year Mortgage
- Allows you to put less down and have more manageable monthly payments.
- You may be able to buy a more expensive home because you will be paying less per month.
- You can deduct the interest off your taxes for a longer period of time.
- Your interest rate may be lower than it would be with a shorter mortgage.
- Because you are paying less you have more money to devote to other savings and can diversify more easily.
Benefits of a 15-Year Mortgage
- Your home is paid off in half the time and you end up paying less interest.
- You accumulate equity in the home more rapidly and pay down the principal faster.
- You may be able to finish paying before you retire.
- Because you are gaining equity in the home faster you may be able to obtain a home equity loan if needed.