December 23rd, 2020 12:53 PM by Jackie A. Graves, President
If you are weighing a 15-year mortgage vs. a 30-year mortgage, the shorter loan term will be cheaper in the long run — but it also limits your options.
When it comes to getting a mortgage, one of the most important parts to consider is the loan term. Nearly 90% of homebuyers choose a 30-year fixed mortgage, but you’ll need to consider what’s right for your situation.
Generally, a longer loan term comes with lower monthly payments, but shorter loan terms cost much less in interest.
Here’s how to weigh your options with 15-year and 30-year mortgages:
Your loan term impacts how much you’ll pay for a mortgage
A loan term plays a big role in the interest rate you get, your monthly payment and how much interest you pay over the life of the home loan.
When you take out a home loan, whether it’s a 15- or 30-year mortgage:
More of your monthly mortgage payment goes to interest in the beginning. Homeowners with a 30-year mortgage will pay more interest versus those with a 15-year mortgage.
Pros and cons of a 15-year mortgage
Because it has a shorter term, a 15-year mortgage will be much cheaper in the long run — but it limits your other options.
Pros and cons of a 30-year mortgage
A 30-year fixed mortgage costs more in interest over the life of the loan, but the monthly payments are more affordable.
If you’re considering a home purchase, be sure to shop around for the best rates. ChangeMyRate.com makes this easy — you can compare all of our partner lenders and see prequalified rates in as little as three minutes.
Which loan term is right for you?
When deciding between a 15-year or 30-year mortgage, carefully review your monthly income and expenses. A 15-year loan is best if you have a high income and few other debts, you’re looking for the best mortgage rate, or you want to buy a smaller home.
On the other hand, a 30-year loan is best if you have significant expenses or investments elsewhere, or you want to buy a larger property.
Another option: Get a 30-year mortgage and pay it off early
In the 30-year vs. 15-year mortgage debate, it doesn’t have to be all or nothing. There’s a way to combine the flexibility offered by a 30-year mortgage with the interest savings of a shorter term.
If your loan no longer carries a prepayment penalty, you can pay off your mortgage early. Simply choose a 30-year term and pay extra toward the principal balance each month. You’re still building equity more quickly, but you also have the ability to handle other expenses if you need to during one month.
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