It’s the most fundamental decision you have to make before committing to a home mortgage. Will you repay it over a term of 15 years – or 30? (Noting that other term lengths are available, albeit less popular.)
It’s not a decision one should take lightly. Fortunately, there aren’t too many factors to weigh before arriving at the mortgage term that better suits your needs. Better yet, you may be able to alter the term of your mortgage by refinancing it, so nothing’s set in stone.
30-Year Mortgage Pros and Cons
Why is 30 years the most popular mortgage term? A number of reasons, chief among them being its lower monthly payments. Granted: a higher percentage of that payment will go toward paying interest. Even so, it may be the only mortgage payment you can currently afford to make (bearing in mind that it is inadvisable to take out a mortgage which equals more than 2 to 2.5 times your gross annual income).
That brings us to the 30-year mortgage’s second great advantage: it allows you to purchase a larger home. By leveraging its lower monthly payments, a 30-year mortgage may be the only one which lets you buy a home spacious enough for your large (or soon-to-be-larger) family.
Don’t overlook the major downside to a longer mortgage term. The longer you spend paying off a mortgage, the more you will ultimately pay toward interest. And in addition to its longer term, a 30-year mortgage also typically comes with a relatively higher interest rate. That means you’ll turn less of your hard-earned cash into equity.
15-Year Mortgage Pros and Cons
Are you considering a 15-year mortgage instead? You may prefer it for several reasons, the first being the most obvious: you’ll become a homeowner sooner. No one especially enjoys having a mortgage hovering over their head. Getting rid of it in half the time is nearly always the preferable option.
The benefits of a 15-year mortgage don’t end there. It will ultimately save you a significant amount of money, as its shorter term goes hand-in-hand with a lower interest rate. You will also build home equity at a faster rate, which may very well give you the option of refinancing sooner than you otherwise could have.
Naturally, a 15-year mortgage’s advantages are counterbalanced by some downsides. First and foremost, it comes with substantially higher monthly payments. These have the potential to save you hundreds of thousands of dollars in the long run – but if you cannot afford them on your current budget, then higher payments simply aren’t practical. Also, lenders tend to impose stricter requirements for 15-year mortgages. Qualifying for one may be harder for many borrowers.
A mortgage is a big commitment, regardless of its term length. If you would like to speak with a local expert about whether a 30- or 15-year mortgage is better for you, then we welcome you to contact Sherburne State Bank or visit one of our locations in Becker, Monticello or Princeton, MN today!
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