“Should I take a 30-year or 15-year home mortgage?”
This is a question many first-time homebuyers ask. The answer to that question is not a simple one, as it depends on each individual’s needs and situation. We’ll go over these two common mortgage types below to provide some clarity and help you make a decision.
30-Year Home Mortgage: Advantages and Disadvantages
The 30-year home mortgage is the most popular option for most homebuyers. With this option, your monthly payments are lower, as they are stretched out over a longer period of time.
One of the advantages of a 30-year mortgage is that the lower monthly payments allow you to increase your home buying budget, which means you can afford a larger home or put more money into savings for unexpected emergencies.
One of the disadvantages of a 30-year mortgage is that you will be paying more in interest over the life of your loan. As Michael C. Thomsett from IntuitMint points out, this can add up.
“If your mortgage balance starts out at $100,000 and your loan is written at 5% interest, the 30-year term requires a monthly payment of $536.83,” he writes. “Over 30 years, the total of all payments adds up to just under $193,259.”
However, the low rate of the monthly can provide you with some flexibility, especially if you are a first-time homebuyer. You can always pay more on your monthly payments in the future if your income increases. This will help lower the principal and you’ll be able to pay off the loan faster.
If you plan to move in the next five years, this will not be a big benefit to you. If you plan to stay for a while, though, it can provide savings in the long run over what you would have paid in interest.
15-Year Home Mortgage: Advantages and Disadvantages
The obvious benefit of a 15-year home mortgage is that you will pay off your home in half the time, becoming debt-free much more quickly. You will build your home equity much faster. Your overall interest payments will also be much lower because they will be stretched over a shorter time period.
The disadvantage to the 15-year mortgage is you’ll be making monthly payments that are about double the amount of a 30-year mortgage. It’s a tradeoff—since you will be paying off your home twice as fast, the amount you owe on a monthly basis is greater.
It’s a good idea to discuss a 15-year loan with a mortgage professional before you make your decision. They’ll be able to help you determine if you can afford the higher payments before you get locked into them.
Which Is Best for You?
The answer to which type of mortgage you should choose is not black and white. It greatly depends on your current situation and budget. How much can you afford? Do you have college debt to pay off? How stable is your employment? Do you plan on moving in the next five years?
These questions and more should be answered before your final decision is made. A mortgage professional can sit down with you to help you determine which loan is best for you. They’ll know what questions to ask and be able to walk you through the process of choosing a loan type that’s a good fit.
As a local mutual bank, we know Darke and Mercer counties. We know the people. We know the housing stock. We’re always happy to share this knowledge and invite you to call 877.672.4543 to speak with a mortgage loan officer, fill out our online mortgage application or visit a Mercer Savings Bank location near you today.