Should You Get a 15-Year Fixed Rate Mortgage?

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Are you buying a home for the first time? When looking at different mortgage loan rates in Guilford and other locations, lenders will typically offer you two options: a 15-year plan and a 30-year plan. The majority of first-time homebuyers choose a 30-year mortgage plan since it will require lower monthly payments, which can help them stick to their budget much easier every month. However, for buyers who want to save more money in the long run, a 15-year loan is the best way to go. If you are still not sure if a 15-year mortgage plan is best for you, here are the pros and cons of this type of loan:

Pros of a 15-year mortgage

1. Lower interest

The interest rates for 15-year mortgages are lower since the shorter the term of the loan is, the less risky it is for lenders. Interest rates vary from lender to lender, but all 15-year mortgages have interest rates that are at least 0.25-1% less than a long-term loan. Compared to a 30-year mortgage, you can end up paying almost fifty percent less in interest with a shorter loan.

2. Faster equity building

With a shorter repayment term, your home can build equity faster. If your goal is to build your home’s equity, choose a 15-year mortgage over a longer loan.

3. More money in the future

If you buy your home when your kids are still young, after you pay off your mortgage in 15 years or less, you’ll have more money to spend on their education and other important things.

4. Shorter loan life

A 15-year mortgage is already a long time to pay off a debt, but imagine spending 30 years just to pay off your house. Granted, a home is one of the most expensive things that we can buy, but we don’t want to spend a good chunk of our lives paying for it.

Cons of a 15-year mortgage

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1. Higher monthly payments

The number one reason why most first time home buyers don’t want to go for a 15-year mortgage is because of the higher monthly payments. In general, a 15-year loan will require at least fifty percent more in monthly payments compared to a 30-year plan, which is not something that many people can afford.

2. Less affordability

With a shorter loan term, you will qualify for a less expensive house than if you choose a 30-year mortgage, which can get you a more expensive home.

3. Fewer cash reserves

If the majority of your income is going into your mortgage, then you will have less money for emergencies, savings, college funds, retirement, and other things that you will need in the future.

Is a 15-year mortgage best for you? If you can afford higher monthly payments, aim to be debt-free sooner, and can settle for a more modest house, then the answer is yes. But if your current income is unstable or you want to buy a more expensive house, then a long-term loan may be more appropriate.

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