Why You Should Consider a 15-Year Mortgage When Buying a Home

Are you planning to buy a home and wondering what type of mortgage to choose? A 15-year mortgage could be a great option for you. While most homebuyers opt for a 30-year mortgage, a 15-year mortgage can save you thousands of dollars in interest over the life of your loan. In this article, we’ll explore the benefits of a 15-year mortgage and why you should consider it when buying a home.

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What is a 15-year mortgage?

A 15-year mortgage is a type of home loan that is paid off over a 15-year period. Unlike a 30-year mortgage, which has a longer repayment term, a 15-year mortgage requires you to make higher monthly payments. However, the benefit of a 15-year mortgage is that you pay significantly less in interest over the life of the loan.

Benefits of a 15-year mortgage

Save money on interest

One of the biggest benefits of a 15-year mortgage is that you’ll save a lot of money in interest over the life of the loan. Since the repayment period is shorter, you’ll pay less in interest overall. According to Bankrate, if you were to take out a $200,000 mortgage at a 4% interest rate, you would pay a total of $143,739 in interest over the life of a 30-year loan. However, if you took out a 15-year mortgage at the same interest rate, you would pay only $66,288 in interest over the life of the loan. That’s a savings of $77,451.

Build equity faster

Another benefit of a 15-year mortgage is that you’ll build equity in your home faster. With a 30-year mortgage, it takes longer to build equity since you’re paying more in interest. However, with a 15-year mortgage, more of your monthly payment goes towards the principal, which means you’re building equity faster. This can be a great advantage if you plan on selling your home in the future.

Pay off your mortgage faster

A 15-year mortgage allows you to pay off your mortgage faster than a 30-year mortgage. This means you’ll be able to own your home outright sooner, which can be a great feeling of accomplishment. Additionally, since you’ll be paying less in interest, you’ll be able to save more money for other goals, such as retirement or your children’s college education.

Lower interest rate

In general, a 15-year mortgage has a lower interest rate than a 30-year mortgage. This is because lenders consider a 15-year mortgage to be less risky since the repayment period is shorter. As a result, they may offer you a lower interest rate, which can save you even more money over the life of the loan.

Is a 15-year mortgage right for you?

While a 15-year mortgage has many benefits, it may not be the right choice for everyone. Before deciding on a 15-year mortgage, consider the following:

Monthly payments

Since a 15-year mortgage has a shorter repayment period, your monthly payments will be higher than they would be with a 30-year mortgage. This may make it difficult for some people to afford their monthly payments. Make sure you can comfortably afford the higher monthly payments before choosing a 15-year mortgage.

Other financial goals

If you have other financial goals, such as saving for retirement or your children’s college education, a 15-year mortgage may not be the best choice. Since your monthly payments will be higher, you may not have as much money to put toward other goals. Consider your other financial goals before choosing a 15-year mortgage.

Job stability

A 15-year mortgage requires a higher monthly payment, which means you’ll need to have a stable source of income to afford it. If you’re worried about job security or anticipate a change in your income in the future, a 30-year mortgage may be a better option since the monthly payments are lower.

Debt-to-income ratio

Lenders will look at your debt-to-income ratio when deciding whether to approve you for a mortgage. If your debt-to-income ratio is too high, you may not be approved for a 15-year mortgage. Make sure you have a low debt-to-income ratio before applying for a 15-year mortgage.

How to qualify for a 15-year mortgage

To qualify for a 15-year mortgage, you’ll need to meet the same requirements as you would for a 30-year mortgage. This includes having a good credit score, a stable source of income, and a low debt-to-income ratio. You’ll also need to have enough money for a down payment, which is typically around 20% of the home’s purchase price.

Pros and cons of a 15-year mortgage

Pros

• Save money in interest
• Build equity faster
• Pay off your mortgage faster
• Lower interest rate

Cons

• Higher monthly payments
• May not be the best choice if you have other financial goals
• Requires a stable source of income
• May not be approved if your debt-to-income ratio is too high

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Conclusion

Overall, a 15-year mortgage can be a great choice if you want to save money in interest and pay off your mortgage faster. However, it may not be the best choice for everyone. Consider your financial goals and current financial situation before choosing a 15-year mortgage.

FAQs

Can I refinance my 30-year mortgage into a 15-year mortgage?

Yes, you can refinance your 30-year mortgage into a 15-year mortgage if you qualify for one. However, keep in mind that your monthly payments will be higher.

What if I can’t afford the higher monthly payments of a 15-year mortgage?

If you can’t afford the higher monthly payments of a 15-year mortgage, a 30-year mortgage may be a better option for you.

How much can I save in interest with a 15-year mortgage?

The amount you can save in interest with a 15-year mortgage depends on the interest rate and loan amount. However, in general, you can save tens of thousands of dollars in interest over the life of the loan.

Are there any downsides to a 15-year mortgage?

The main downside of a 15-year mortgage is the higher monthly payments, which may make it difficult for some people to afford.

Is a 15-year mortgage always a better option than a 30-year mortgage?

No, a 15-year mortgage is not always a better option than a 30-year mortgage. It depends on your financial goals and current financial situation.