15 Year vs 30 Year Mortgage

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Overview

Weighing a 15 year vs 30 year mortgage can be difficult. Several factors must be weighed — chief among these is how you’ll pay back the principal (the original amount of money you borrowed). Below, we take a closer look at the pros and cons, 15 year vs 30 year mortgage.

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Products Compared

15 year vs 30 year Mortgage

Topics Ahead

I. Getting Started
II. 30-year Mortgage (Upside, Downside)
III. 15-year Mortgage (Upside, Downside)

I. Getting Started

Below are a few key questions to consider, 15 year vs 30 year mortgage:

  • Do you have an emergency fund already established?
  • How close are you to retirement?
  • Have you maxed out your retirement plan contribution?
  • Do you have any high-interest debt? If so, then how much?
  • Are you relying on one or two incomes to support your monthly mortgage payment?
  • What can you comfortably afford? Is that the same as the amount for which you’re approved?
  • What are your financial goals?

II. 30-Year Mortgage

A 30-year fixed-rate mortgage may be ideal for those with moderate income and plenty of working years ahead of them. Monthly payments on a 30-year mortgage are smaller because the loan term is longer. Below are the upside and downside with a 15 year vs 30 year mortgage.

Upside

  • Afford a little more home, when an extra bedroom or utility space would better suit your needs
  • You have the option of making additional payments toward the principal which will shorten your loan term.
  • Use the monthly savings to:
    • Build an emergency fund to cover loss of income or other life-changing event
    • Make monthly contributions toward other investments, including retirement

Downside

  • You may pay more in interest over the life of the loan
  • You may build equity at a slower rate because more of your payment goes towards interest
  • You may make mortgage payments for as many as 15 more years, depending on whether you make any extra payments
  • You may have a higher Interest rate on a 30-year mortgage than a 15-year mortgage
  • You could potentially convince yourself to “take on too much house,” possibly right up to your debt-to-income (DTI) limit, with very little or no money remaining to invest elsewhere.

III. 15-Year Mortgage

A 15-year may be suitable for those who’ve already maxed out retirement contributions, plus have a nest egg and no other high-interest debt. Monthly payments on a 15 year vs 30 year mortgage are higher because the loan term is shorter.

Upside

  • Generally, enjoy lower interest rates because the loan is less risky for the lender
  • Pay less interest over the life of your loan
  • Complete loan repayment in as little as half the time compared to a 30-year term
  • Build equity faster and have the option to take out a home equity loan or line of credit to:
    • Cover renovation projects
    • Buy an investment property

Downside

  • You may commit to a higher monthly payment for the life of the loan.
  • You may have less money for other investments such as a retirement account.
  • You may have less of a cushion to absorb loss of income or other significant life change.

 

Ready to explore your options, 15 year vs 30 year mortgage?

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