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For most buyers, a 30-year mortgage is the first and only option when it comes to borrowing to buy a home. However, whenever it is possible, a 15-year mortgage is the ideal choice for some homebuyers who are able to afford higher monthly payments. As suggested by the timeline in the name, this mortgage gives those homeowners the ability to pay it off in half the usual amount of time. That can be a big burden off of their shoulders and can save thousands, or possibly tens of thousands of dollars of interest on top of it.
15-year mortgages can be great but are they worth it for you? You should decide whether your income is reliable enough and whether you can support the higher payment to get your mortgage paid off sooner than later.
15-year mortgages are usually fixed-rate mortgages that will be paid off in 15 years in the case that every payment is made on time. The principal and the interest rate will be the same for as long as you hold the mortgage, so getting a 15-year mortgage when rates are low is the best possible situation.
More Equity Faster
Instead of waiting to put more money into your home over three decades, you have more equity in your home faster with a 15-year mortgage. This is because you are able to pay down the principal balance faster than you would with a typical 30-year mortgage.
Since you are paying off the loan faster and have less interest, you save a bundle with a 15-year mortgage. This is because you pay half as many years of interest. Additionally, lenders like 15-year mortgages because they are exposed to less risk drawn out over a shorter period of time. This means they can offer lower interest rates for 15-year mortgages, making them worth to many borrowers.
One of the things you will need to stomach if you get a 15-year mortgage are the larger monthly payments. The principal and interest payments on a 15-year fixed rate mortgage can often be 505 higher than those of a 30-year mortgage. This means tying up a bigger portion of your income in your mortgage. If you are comfortable with putting more money into your housing costs, then this isn’t an issue at all. However, you should think at least 15 years down the road when considering this kind of mortgage because the ways out aren’t pleasant. If you can’t keep up with the higher payments, you will need to sell your house, refinance your mortgage, or the bank will foreclose on the home.
Buying Less Home
Higher payments, higher cost, and therefore a less expensive loan. You may end up with a smaller house or having to buy outside of your favorite neighborhood. This isn’t the end of the world for many homebuyers but if you had your eye on a specific home before that would have worked with a 30-year mortgage, you should check your 15-year mortgage again before you move forward. Often stretching out the payments over a longer time period will give you more choices because you can qualify for a bigger loan.
If your income is variable and unpredictable, payments on a 15-year mortgage may become too much to handle eventually. However, if you can afford the higher payments and you will be able to meet your other financial duties and goals at the same time, it is a great way to lock in a lower interest rate and enjoy paying off your mortgage much faster. Whenever making these decisions, it is best not to stretch your finances too close to the limit and make sure you have some wiggle room in an emergency. Make sure your 15-year mortgage fits those goals before you jump into it.