Is a 15-Year Mortgage Better than a 30-Year Mortgage?
You will be faced with several different options when you are obtaining a mortgage. One of the biggest options you will have to choose from is the length of your loan. Many people choose the traditional 30-year mortgage, but is that right for you? Or should you consider going for a 15-year mortgage?
Basic Facts
The difference between the two mortgages is obvious. One mortgage is for 30 years and the other is only for 15 years. But, how does that affect you as the homeowner? The longer mortgage offers much lower payments since the loan total is split up over twice as many months. The 15-year mortgage has larger monthly payments even though they usually have a lower rate than the traditional 30-year mortgage. The choice might seem obvious to you, but there is something to be said for a 15-year mortgage.
Pros of a 15-Year Mortgage
While the lower monthly payments of a traditional loan sound like a great deal, you will save money over the life of your loan with a 15-year mortgage. Due to the shorter time period you save a lot of money on the total interest that you end up paying in the end. Here is an example of how much you can save if you are obtaining a mortgage for $150,000 using the current mortgage rates of 3.03% for a 15-year mortgage and 3.34 for a 30-year mortgage:
Monthly Payments Total Interest
30-year mortgage $660 $87,687
15-year mortgage $1,038 $36,847
That means that over the life of the loan you will save yourself an astounding $50,840. While you save a significant amount of month you will also own your house in half the time, meaning that you will have no mortgage payment and extra $1,038 in your pocket each month.
Can I Save Any Money on a 30-Year Mortgage?
Sometimes the option of paying that higher payment that comes with the shorter line is just not a realistic option. If that is the case for you, don’t be discouraged looking at the numbers; you can still save some money.
The majority of traditional 30-year mortgages will not penalize you for paying off your loan early. That means that you can choose to make extra payment on the principal throughout the life of the loan whenever it works out for you. Any time that you pay down on your principal with extra payments you lower the overall amount of interest that you will pay. By doing this you gain the freedom of the lower payments, but can still reduce your overall interest amount.
When deciding which loan is right for you make sure to consider what your future holds as well. Once you have obtained your mortgage you are locked in to paying the total plus interest back each month until you either pay it off or are able to sell the house. If you are interested in the 15-year mortgage consider if you can commit long term to the higher payment.