Home buyers have many choices to make when purchasing a home and one of those choices has to do with the length of the loan. There are pros and cons to both the 15-year mortgage and the 30-year mortgage and the answer may not necessarily mean that one is “better” than the other; it simply depends on what the home buyer’s needs are.
The 15-Year Mortgage
If you choose the 15-year mortgage, your monthly payments may be higher than a 30-year loan would be, but your interest rate will be lower. Additionally, by going with the shorter loan, you will build equity faster than if you went with the longer loan. You pay a little more monthly, but you have a lower interest rate; build equity faster, and own your home in 15 years.
The 30-Year Mortgage
Many people that opt to take advantage of the 30-year mortgage do so because the monthly payments are lower, and thus, more affordable. This allows home buyers to choose homes in a higher price range than they could afford if they went with the 15-year loan. Though monthly payments may be lower, the interest rate on 30-year mortgages are higher, so in the long run, you end up paying a considerable amount of money back in interest as opposed to the shorter loan.
Which One Is Right For You?
The loan you decide to take advantage of depends on your financial picture at present, as well as your goals regarding long-term wealth. If you can adequately pay the higher monthly amount for the 15-year loan with no financial stress ensuing, then this would be your best option because the interest rate is lower and you own your home in 15 years.
If your current financial picture does not leave you with a lot of money at the end of the month, it is probably better to go with the lower monthly payments of the 30-year loan. You will end up paying a lot more interest in the end, but you will be able to comfortably afford your new home.
There are pros and cons to both home loans, so consider the varying factors before making a decision. You can discuss the matter further with a mortgage loan professional or your real estate agent.
Call Sonja today to discuss your real estate needs at 661-979-9000 or email her at [email protected] to schedule an appointment.