Deciding Between A Fixed 15- Or 30-Year Mortgage? 4 Things To Take Into Consideration

Posted on

When you take out a mortgage on a home, you need to decide how much time you want to have to pay back the loan. A fixed-term fifteen-year or fixed-term thirty-year mortgage are two of the more common mortgage loan options you can choose between.

Paying off a mortgage in fifteen years is different than paying a mortgage off in thirty years, which is why you want to carefully consider the implications of both choices.

Factor #1: Size of the Payment

First, you need to look at what your monthly payment will be for a thirty-year mortgage and for a fifteen-year mortgage. The monthly payment for a thirty-year mortgage is bound to be smaller than that for a fifteen-year mortgage.

When looking at the size of the payment, you really need to think about what you can afford to pay on a monthly basis. With a thirty-year mortgage, you can make a larger payment every month if you want to; with a fifteen-year mortgage, if you are not able to make a full payment each month, it will negatively impact your credit score.

You want your mortgage payment to be something you can easily afford; for some people, a fifteen-year mortgage payment may be easy to afford; however, if that isn't the case based on your other bills and expenses, then go for a thirty-year mortgage.

Factor #2: Amount of Interest Paid

There is no way around it: when you take out a fifteen-year mortgage, you are going to pay less interest than when you take out a thirty-year mortgage.

A shorter mortgage length can greatly reduce the amount you pay on your home. If you are looking to become debt-free or are looking to retire soon, a fifteen-year mortgage can help you achieve those goals by making the overall cost of your home more affordable.

Factor #3: Building of Equity

With a fifteen-year mortgage, you are going to be making larger payments, and thus you will build up equity in your home faster. By building up equity in your home at a faster rate, you can then tap into that equity and use it to take out lines of credit against your home to pay for other expenses.

Factor #4: Savings & Investment Goals

Finally, you need to consider your overall savings and investment goals. With a thirty-year mortgage, less money will be going to your housing costs each month, which in theory means you can dedicate more money to your other savings and investment needs or towards paying down other debt.

This works best if you have an active plan on how you want to use the money you are not investing in your home in a smart manner.

When it comes to deciding between a fifteen- and a thirty-year mortgage, it is all about your personal money goals. A fifteen-year mortgage will require larger monthly payments, but you will build equity faster and reduce the overall cost of the home. A thirty-year mortgage will allow you to make smaller monthly payments and will give you more freedom with how you use the rest of your income. Contact a residential mortgage lending service to learn more about your options.