If you’re currently looking into buying a home, you probably already realized that there are different types of mortgages available. The two most common types available are 15-year and 30-year mortgages.
While the 30-year mortgage is the type more frequently chosen by new homebuyers, the 15-year option has many overlooked benefits that might suit some people better. With that said, let’s compare these two types of loans so you can make an informed decision on which one might be best for you.
When financing a mortgage, the amount you pay includes interest, principal, home insurance, and your monthly payments. Some homeowners pay hazard insurance as well, depending on where they live and what types of additional protection they want.
The major difference between 15-year and 30-year mortgages in regards to this is that lower interest rates are more likely to be found in the 15-year loan, but monthly payments will typically be higher.
The 30-year loan will normally cost you less each month. However, with higher interest rates, most people end up paying much more in the long run over time.
Benefits of a 15-year mortgage
The 15-year mortgage is obviously more preferable for those who can afford higher monthly payments. The main benefit of choosing this type of plan is that you have your home paid off in half the time that it would take with a 30-year mortgage.
The other major benefit is that you’re putting equity into your home more quickly. Because your monthly payments are higher under a 15-year mortgage, the money you’re investing isn’t just going towards the interest in the beginning. You’re putting money into your home that you can always use to your benefit later if you should ever need it, such as in the form of a home equity loan.
Benefits of a 30-year mortgage
The one clear benefit of choosing a 30-year mortgage is that you have much more time to pay it off. You have less pressure on you each month, and this is reflected by the fact that the monthly payments are much lower than they would be with a 15-year mortgage.
In addition to this, a 30-year mortgage means that you may qualify for a more expensive home since your monthly payments would be less than they would be with a timeframe. This is a major reason why this type of mortgage is the preferred one for most home buyers.
Lastly, you shouldn’t worry too much if you end up choosing one type of mortgage and regret not choosing the other. Most banks and financial institutions will allow you to refinance the loan so you can switch from one type to the other if you feel you’ve made a mistake. Buying a home should be a fun experience and there are many different options to change your situation or get out of a home if you should suddenly need to.