15 Year vs 30 Year Mortgage
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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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15 year vs 30 year Mortgage
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.
- 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
- 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.
- 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
- 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?