Articles & Tips
30-year Mortgage vs. 15-year Mortgage
Despite the wide range of products available to borrowers today, the 30-year mortgage remains one of the most popular loan vehicles for both home buyers and those looking to refinance. But while these loans have traditionally proved the popular choice, the fact is, they may not be the best choice financially for every buyer.
Recognizing their options, more and more buyers are turning to what is probably the second most popular option for home mortgages today: the 15-year mortgage. The following overview can help you decide which one is right for you.
30-year mortgage
Considered the workhorse of the mortgage industry, a 30-year mortgage is a good choice if you plan to remain in your home for a long period of time. Because it has a lower monthly payment than a 15-year mortgage, it can also be a good way to keep your monthly expenses low. Lower monthly payments also mean the income level required to qualify is lower, making them more accessible for many borrowers. Compared to a 15-year mortgage, the primary disadvantages of the 30-year mortgage are that it will take you twice as long to pay off your loan, and twice as long to build equity. The total amount you pay for your mortgage will also be substantially higher, since interest will be charged for the entire 30-year life of the loan. Still, for homeowners who plan to stay in their homes for many, many years, and are interested in consistent, low monthly payments, the 30-year mortgage can be hard to beat.
15-year mortgage
This type of mortgage is a much more recent addition to the industry, which once revolved largely – if not solely – around the 30-year term. Still, for the past several decades, the 15-year term has proven to be increasingly popular for both new home purchases and for refinancing existing mortgages. While a 15-year mortgage may offer a lower rate than a 30-year loan, because you’re paying off your loan in half the time of a 30-year mortgage, your monthly payments will be higher, meaning you’ll need a higher income to qualify. However, you’ll also reap the rewards of building equity much more quickly, and the total amount you’ll end up paying over the life of your loan will be substantially less than with a 30-year mortgage.
Both 15-year mortgages and 30-year mortgages offer advantages and drawbacks, and only you can determine which is right for you. Before shopping for a mortgage, take the time to consider your goals to ensure you select the term that suits your own financial needs.
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