The 30-year mortgage is considered a staple, American archetype for home buyers. In fact, it is often expected that home buyers will take out a 30-year mortgage; so much so that many new buyers don’t consider other mortgage options like the 15-year mortgage.
For the purpose of this article, we will be looking at 15- and 30-year fixed rate mortgages.
Is There Really A Difference?
Yes. The biggest difference is how quickly you will pay off your loan and the monthly mortgage payments. As with all large financial decisions, you must consider your current financial situation before applying for a loan as well as the type of loan you want, as all come with their own requirements.
15-Year Mortgage
One of the main advantages of a 15-year mortgage is that you will pay less interest over the life of the loan, as you will be paying higher monthly payments than a 30-year mortgage. As such, you will own the home and build home equity faster.
Remember that with a 15-year mortgage, you may not be able to get as big as a house or loan as you may have wanted. This is because the higher monthly payments limits you to what the lender will approve to loan you. If you are close to retirement and don’t want to commit to a mortgage in retirement, a 15-year mortgage may be best for you.
While a 15-year mortgage can be paid off sooner, you will need to budget and manage your finances very carefully to avoid financial hardship–especially if you lose your job or your income changes.
30-Year Mortgage
The 30-year mortgage is the “standard” mortgage that many new homeowners go for and it is not hard to see why. This mortgage has lower monthly payments than a 15-year mortgage and opens up more home options in terms of how much house a lender may approve you for.
Because you will have lower monthly payments, you can invest more in personal savings and pay off debts like student loans and credit cards. With a 30-year mortgage, you will have a better financial cushion from saving up.
30-year mortgages tend to be for those homeowners who plan on staying in their home long-term, as well as young families just starting out.
As with all mortgage options, there is never an overall “best” option. It all comes down to your current financial and life situation; what works for one person may not work for you. You should always speak with your lender and financial advisor about your options.
Your credit score, down payment, and many other factors will help you and a lender determine what type of mortgage is best for you.