Choosing a 15-Year Mortgage Rather than a 30- Year Mortgage?

Written by: Christy Rakoczy

When you are purchasing a house, you have a number of different choices to make about the financing of that home. One of the most important is how your mortgage loan will be structured. Although there are a number of different loan programs and alternative financing methods, most homeowners are now choosing the safe mainstay of the mortgage industry: a fixed-term, fixed rate loan. These fixed term, fixed rate loans are most often extended to you for either a 30-year or a 15-year mortgage.

Why Choose a 15-Year Mortgage Over a 30-Year Mortgage

As you begin narrowing down your mortgage choice and deciding between a 15-year mortgage and a 30-year mortgage, it will become clear that the 15-year mortgage has monthly payments that cost a little bit more than the 30-year mortgage. This can make you lean towards the 30-year mortgage, especially if you want to err on the side of having lower and more conservative monthly payments. However, while a 30-year mortgage can seem less expensive, in reality, there are many reasons to consider a 15-year mortgage instead of a 30-year loan.

The biggest reason to consider a 15-year mortgage is that ultimately, this mortgage is going to cost you much less than a 30-year mortgage will over time. A 15-year mortgage typically has a lower interest rate than a 30-year mortgage since it is less risky for lenders to tie up money in a shorter loan commitment. This lower rate makes the cost of borrowing money lower. Because you are paying off the loan in half the time, you also will be paying interest for half of the number of years that you would on a 30-year loan. This, too, means you pay much less in interest and your ultimate cost of borrowing is lower.

There are other significant advantages to choosing a 15-year mortgage as well- most notably, that you have your home paid off fifteen years sooner. If you plan to stay put in the house, you will thus be debt free sooner and you will have a great deal more financial freedom. With no house payment, you will have much more money available each month to put towards savings or towards pursuing your other financial goals and you will have a lot more flexibility as far as taking a chance on a career change or retiring early without worrying about where your house payment is coming from.

Finally, because your home is paid off in less time, your payments- even at the beginning of your mortgage- are larger and pay off more of the principal each month than if you have a longer repayment term. This means you build up equity faster and if you wish to sell, there is much less chance that you would ever be underwater on your home or owe more than your home is worth.

With all of these reasons to consider a 15-year mortgage, many people find that this option makes sense. Of course, the downside is higher monthly payments, but if you buy a home that fits comfortably within your budget, this should not be a major concern for you anyway.


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