Buying a home should be one of the momentous events of your life.
And, for most of us, it’s definitely not going to be cheap.
That means you. Probably There are no cash payments for the home these days, which means that additional costs such as interest and lender fees will further increase the total cost of buying your home (learn about all the costs in our article: 10 Things You Shouldn’t Forget When Buying A Home).
When dealing with such a large amount of money, it is more important than ever to choose the mortgage that has the most financial meaning for you.
There is a difference between a 15-year mortgage and a 30-year mortgage.
The difference between a 15-year mortgage and a 30-year mortgage.
Lenders allow you to choose the term of your home loan when applying for a mortgage, which is the period when you will repay the balance.
The two most common options? 15 year and 30 year mortgages. And b.Other types of home loans deal with the question of affordability in two different ways.
A 15-year mortgage costs you less in the long run because you pay for the house in half the time. That you will do with a 30-year mortgage.
In other words, you will stop paying interest for 15. Less Year As you can see in a minute, it involves a lot of money.
In addition, the interest rate on a 15-year mortgage is usually lower than the 30-year option, which saves you even more.
“30-year mortgages are cheaper in the short term,” he said. Because they spread your debt for a long time.
The term 30-year mortgage makes home purchases more accessible, even if you pay more interest instead of taking a 15-year mortgage.
Comparison of two mortgage terms
For this scenario, suppose the house is worth 40 340,000. Makes the average millennial buyer a About 88% payment, So I would also assume that the loan amount on this purchase is $ 312,800 (with only 8% repayment of more than 27 27,000).
From here, things get trickier.
I will use two different interest rates for each loan term.
- 2.21% for 15 year mortgage.
- 2.77% for 30 year mortgage.
All of these variables may seem like they’re leading to a mathematical equation, but don’t worry. You can just plug in the details MU30. Simple mortgage calculator. Quick comparison of different mortgage terms.
Here’s how each mortgage comes together for our fictitious home buyer.
|15 year mortgage.||30 year mortgage.|
|Monthly payment (original and interest only)||2,043.28.||1,280.29.|
|Total interest paid during the loan period.||$ 54,991.22.||$ 148,106.03.|
As you can see, A 30-year mortgage for a single home will cost 93 93,000 more than a 15-year mortgage. But, Your monthly mortgage will be reduced by about $ 800 with a 30 year option. – This is a big difference in your daily budget.
For many, opting for a 30-year mortgage over a 15-year option for a home and Ongoing rent.
When to consider a 15-year mortgage.
If your emergency savings are solid.
Because you will pay more for your mortgage each month, your budget will have less room to deal with amazing expenses.
Make sure you have at least three to six months’ worth of savings in the emergency fund, only if you lose your job.
Read more: 5 Ways to Start Your Emergency Fund
If you can continue saving while covering your mortgage.
A 15-year mortgage can be a smart move, but not if it endangers your short-term financial health. Consider this option if you can comfortably afford a monthly payment without sacrificing your ability to save elsewhere, including your retirement savings.
If you want to get out of debt quickly.
A 15-year mortgage can be a great option for those who are passionate about dealing with debt quickly and aggressively. You will save a lot of money on interest over time and halve the term of your loan.
Read more: Debt bit kick! How to get out of debt
Advantages and disadvantages of 15 year mortgage.
- You will pay less for your home over time. کاس۔of t When you pay in 15 less years, the interest payments go down.
- You will get a lower interest rate. 15-year mortgages come with a lower rate than the 30-year option.
- You will quickly build equity in your home. Most of your monthly payments go to the principal instead of interest. If you sell your home, you will get a lot of cash back.
- You can apply for home equity financing. If you live in a home, you can access home equity financing products when you own a large portion of the property.
- You will soon be free of debt. Not paying home can set you up for long-term financial security when you grow old and retire because you will not have mortgage payments.
- Your monthly mortgage payments will be higher. Spending more on your mortgage can affect other areas of your finances, such as your savings.
- You may have difficulty qualifying for another type of financing. Lenders always review your debt-to-income ratio. A large mortgage payout consumes a large portion of your monthly income. A lender may not feel comfortable allowing you to borrow more than a certain amount for an auto loan or personal loan.
When to consider a 30-year mortgage.
Now let’s talk about how a 30 year mortgage can be better for you when buying a home.
If you can’t pay the 15-year mortgage.
In some cases, you just won’t be able to handle the monthly payments that come with a 15-year mortgage – and that’s fine! Avoid putting yourself in financial trouble.
If you are prioritizing other financial goals.
We all have goals that require money in life, and home ownership is often just one of them. You may prefer retirement savings, Children’s future college expenses, Or just create a big emergency savings fund.
A 30-year mortgage can help you accelerate other financial goals, especially if you qualify for a lower rate.
Advantages and disadvantages of a 30-year mortgage
- You will receive a lower monthly payment. This gives you more space in your budget to save on other things or deal with a financial emergency.
- You can choose a more expensive house. Expanding your mortgage can allow you to borrow more than you can afford with a 15-year mortgage.
- You may also find it easier to qualify for other types of loans. A 30-year mortgage will reduce your monthly debt-to-income ratio.
- You can reduce the payment period by making additional payments. This strategy reduces the time remaining on your mortgage. Adding just one additional principal mortgage payment every quarter or year can significantly reduce the amount of interest you will pay over time.
- You cannot prioritize additional principal payments. Although many homeowners think they will make these extra payments to reduce their total interest, it is easy to forget or choose to spend the money elsewhere. As a result, it is very likely that you will end up paying this extra interest over the years.
- You will still pay your mortgage when you grow old. If you buy your home at age 30, you will continue to pay until age 60. With a 15-year home loan, you will be free of mortgages until the age of 45.
- Creating a home equity takes more time. Home loans are discounted, which means your prepayment is pre-paid to pay interest. Only a small portion actually goes to your principal for later years.
If you’re not sure what kind of mortgage is best for you, don’t be afraid to shop around. You can learn this by reading our article: How To Choose The Best Mortgage For You.