If you’re securing a mortgage on a new home, or even refinancing your current mortgage, you may be debating between a 15-year and a 30-year mortgage. Both can be great tools towards owning a home, but it’s important to find the best fit for you and your situation. Here are some pros and cons of each one to help you figure out which one you should choose:
Choose the 15-year mortgage if:
– You can afford it. The 15-year mortgage won’t be double the monthly payment of the 30-year but it will be significantly more. You’ll need to factor in that extra amount, along with your insurance costs, taxes and HOA fees to determine if the larger payment is possible for you. For example, on a 200,000 loan, a 15-year loan at 3.57% would be $1436 per month while a 30-year loan at 4.55% would be $1019, a difference of $417 per month.
– You want to work towards not having a mortgage payment at all. On a 15-year mortgage, you’ll pay back the loan in half the time and therefore will be paying less in overall interest while also building equity faster. If you have goals of being completely debt-free, you’ll want to choose the 15-year to get there faster.
– Your income is stable. The increased cost of a 15-year mortgage can sometimes be burdensome for people, especially those with varying income. But if you anticipate that your income will be stable and you’ll be able to pay your mortgage for the lifetime of the loan, go for it!
Choose the 30-year mortgage if:
– You want to save more money for home improvements. If your new home needs work, selecting a 30-year mortgage will give you more cash to use for home improvements and renovations over the years that could bring great value to your home.
– You have other debt. If you have the cash flow to accommodate the larger payment but aren’t meeting any of your other financial goals, like paying off debt, you may want to consider choosing the 30-year option because it gives you greater flexibility in paying off other debts more quickly.
– You want the flexibility. If you like the idea of paying down your mortgage quickly but don’t like the idea of taking on so much financial risk, you could also consider choosing the 30-year mortgage but making additional principal payments each month. Just check to make sure there are no prepayment options so that you wouldn’t be penalized for paying off the loan early.