Buying a home for the first time can be both an exhilarating and frustrating experience. Exhilarating because your home is probably the single biggest investment you’ll make in your life, and frustrating because the mortgage process seems to be rife with difficult dilemmas.
For example, when it comes to paying off your mortgage, the most common debate centers on the 15-year versus 30-year fixed-rate mortgage, which tends to boil down to these central points:
- A 15-year mortgage translates to lower interest rates but higher monthly mortgage payments
- A 30-year mortgage means higher interest rates but lower monthly payments
So, which one should you choose?
The answer, and this is going to frustrate you, is it depends. After all, different borrowers have different financial capabilities and face different circumstances in their journey to homeownership.
Reasons to Choose a 30 Year Mortgage
If you have issues with your monthly cash flow or depend on commissions, a 30-year fixed-rate mortgage might be your best option. This loan guarantees lower monthly payments, which means you get to keep more money in your budget each month. The only catch is that you’ll have to make payments for 30 years, a length of time that shouldn’t be underestimated.
A 30-year loan is a great option if you want a nice house for low monthly payments. And you can always pay extra each month if you want to pay off your principal balance sooner than later. And remember, you’re not locked into higher payments, so you can always go back to your standard monthly payments when cash is tight.
Reasons to Choose a 15 Year Mortgage
If your income allows you to make higher monthly payments, choosing a shorter-term loan like a 15-year mortgage is usually the smarter financial move. Remember, a lot can happen in 30 years, so if you can pay off your loan in half that time, the sooner you can relax and enjoy living in a house that’s already been paid in full.
And remember, choosing a 15-year fixed-rate loan saves you tens of thousands of dollars in interest compared to a longer-term loan. That’s more money in your pocket in exchange for paying more each month for 15 years.
Bottom Line
Remember that with mortgages, time is your friend (or enemy, depending on how you look at things). The more time it takes to pay off the loan, the higher the mortgage’s total cost becomes. But it’s also true that you also have other expenditures like your children’s college fund, savings, and retirement among others to think about, which is where those lower monthly payments come in handy.
In any case, think long and hard about your financial situation. If you need help figuring out which mortgage term is best for your needs and circumstances, mortgage advisor Chris Lamm can you walk you through the entire home loan process. Get in touch today by calling our offices at 530-282-1166 to schedule a consultation.