15 vs. 30 year mortgage: The benefits of each mortgage type
One of the decisions you have to make when you buy a home is your loan term. The 30-year mortgage and the 15-year mortgage are two of the most common.
When you’re deciding between a 15 vs. 30-year mortgage, there are a few things you should think about:
• Look at the difference in the monthly payments between a 15-year mortgage and 30-year loan of the same size. 15-year mortgages charge lower interest rates than 30-year loans, and because you’re paying more per month you’ll end up paying the mortgage principal back in half the time. Ask yourself: Can you afford this?
Your overall finances and expenses:
• It’s important to look at all of your finances. Are you paying off high interest credit cards? Are you saving up cash for emergencies? Are you paying into your 401k?
Your future finances and expenses:
• Are you planning on changing jobs anytime soon? Are you getting closer to retirement? Take into consideration how stable your job currently is and if you’ll want to be making mortgage payments during retirement.
Karim, a homebuyer, describes why he chose a 30-year loan: “We felt much more comfortable in a 30-year fixed because we knew that we were going to stay in that apartment for a long time, and it will keep the mortgage amount low which is comfortable for us to pay on a monthly basis.”
In the end, choosing between a 15-year mortgage vs. a 30-year mortgage is knowing what you’ll be more comfortable with.
JA YUNG: When you’re dealing with the consideration of whether you go with a 15-year mortgage or a 30-year mortgage, really what has to be taken into consideration is the affordability.
JA YUNG: I mean, ultimately 15-year is very appealing because over the life of the loan, you do pay less interest. However, it is a much higher monthly payment whereas a 30-year gives you the flexibility of the lower payment.
JA YUNG: So you can take that mortgage, have the flexibility of the lower payment but throw extra money towards the principal as you’re able to and that’ll pay your loan off faster as well.
KARIM: We felt much more comfortable in a 30-year fixed because we knew that we were going to stay in that apartment for a long time and it will keep the mortgage amount low which is comfortable for us to pay on a monthly basis.
TIM: The 15, you’re going to pay less interest in the long term but obviously your monthly payments are going to be a lot more vs. the 30, your payments are smaller per month but you’re going to be paying more in interest in the end. So making that decision as you buy the house, how much is it in your price range? Is that 15-year mortgage in your price range because if so, you could potentially save yourself a lot of money down the road. I mean, it’s just being aware that those two options do exist, I guess, and that you can pay less per month or potentially pay less in the long-term with interest.