Choosing Between 15 Year Mortgage and 30 Year Mortgages
You must be excited about buying a new house but not the idea of mortgage payments that you may be making for the rest of your life. So are you going with a 15 year mortgage or a 30 year mortgage?
If, just by looking at the term, you think that a 15-year mortgage plan is a smart move, think again! Opting for a shorter term loan may not necessarily be a better choice in some cases. Just like a shorter term loan helps you get away from mortgage payments earlier, there are some situations in which a longer mortgage term may make more sense.
If you can’t decide which option is best for you let us have a look at the advantages of each one of them in detail.
How Both Loans Work
The major difference in both mortgage terms is; how interest and payments add up. A 15 year plan comes with higher monthly payments but less interest. On the contrary, a 30 year plan works opposite. While the mortgage payments will be smaller, you will have to pay a higher price for your house due to the interest.
So when you must decide between the two, think about the term that is the best fit for your budget. The best way is to weigh it against your overall cost.
When 15 Year Plan Make More Sense
Selecting a 15 year mortgage may be the right choice for you depending on the personal situation. If you want shorter payment duration, evaluate your finances and make sure you can handle the higher monthly cost.
Consider your job situation and make sure your income will not drop anytime during the loan duration. Don’t get into the higher payments of going with a 15 year mortgage if you think you won’t be having enough income later on. Also, consider the impact of higher payments on your other financial goals such as your children’s educational plan.
Benefits Of Selecting A 30 Year Plan
Choosing a 30 year mortgage may give you some wiggle room to save. Also, you can get a huge bang for your buck in terms of tax benefits. You can claim the deduction of mortgage interest longer, putting additional money back in the pocket every year. This is particularly true if you think that you will be paying for your house even after your retirement.
Another benefit of this mortgage term is that you can prepay the mortgage. You can do it without stirring the budget while paying your loan faster and saving a good amount of money in terms of interest.
But before you go with a payment option, don’t forget to ask your lender if there is any penalty forear;y payment.
The bottom line
Always look at the bigger financial picture while selecting the mortgage term. If you have other financial goals to take care of, go with the longer term but if you want a faster route to repayment, a 15 year plan is the best choice to go for.
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