Should you get a 30 year mortgage or a 15 year mortgage? Here are a few things to consider before making that very important financing decision.
A 30-year mortgage and a 15-year mortgage are two common options for home buyers to finance their home. Here are some key differences between the two:
- Loan Term: The loan term is the length of time the borrower has to repay the loan. A 30-year mortgage has a term of 30 years, while a 15-year mortgage has a term of 15 years. This means the borrower has half the time to pay off the loan with a 15-year mortgage.
- Interest Rates: Interest rates for 15-year mortgages are typically lower than those for 30-year mortgages, because the shorter term presents less risk to the lender. This can result in significant savings over the life of the loan, as the borrower will pay less interest overall.
- Monthly Payment: Monthly payments for 15-year mortgages are typically higher than those for 30-year mortgages, because the borrower is paying off the loan in half the time. However, this higher monthly payment can result in significant savings over the life of the loan, as the borrower will pay less interest overall.
- Total Cost: The total cost of a 15-year mortgage is typically lower than that of a 30-year mortgage, because the borrower is paying less interest over the life of the loan. This can result in savings of tens or even hundreds of thousands of dollars over the life of the loan.
- Qualification Criteria: Qualification criteria for 15-year mortgages are typically stricter than those for 30-year mortgages, because the higher monthly payment requires the borrower to have a higher income and lower debt-to-income ratio. This means that not all borrowers will qualify for a 15-year mortgage.
In summary, a 30-year mortgage has a longer term, higher interest rates, lower monthly payments, and higher total cost than a 15-year mortgage. A 15-year mortgage has a shorter term, lower interest rates, higher monthly payments, and lower total cost than a 30-year mortgage. The choice between the two depends on the borrower’s financial situation and goals. If the borrower can afford a higher monthly payment and wants to save on interest over the life of the loan, a 15-year mortgage may be the best option. If the borrower wants a lower monthly payment and more flexibility in their budget, a 30-year mortgage may be the better choice.