When buying a home or refinancing, being sure to choose the right mortgage is a huge choice that can significantly impact your financial well-being in the future. When it comes to choosing a loan term, there are two common choices that make up above 85% of loans industry-wide - which is the 15-year mortgage and the 30-year mortgage. It goes beyond mortgage guidelines or monthly payments. Lets explore the benefits of both, creating a sense of clarity as to how each can shape your beneficial road to homeownership. Here are the benefits of a 15 year mortgage vs. a 30 year mortgage:
The 15-Year Mortgage: Ownership While Paying Lower Interest
1. Accelerated Equity Accumulation:
One of the best and most clear advantages of a 15-year mortgage loan is the accelerated equity accumulation. With a shorter repayment period, homeowners will naturally build equity at a much faster rate. The loan amortization chart will show you that much more of your payment will be applied toward the principle balance during the first half of the loan term, compared to a 30 year fixed. This can be very significant, especially for investors who may be looking to leverage their home equity for future investments.
2. Lower Interest Rates:
Generally, 15-year mortgages come with lower interest mortgage rates compared to a 30-year fixed mortgage. This also equates to you paying less in interest over the life of the loan, adding up to substantial savings. If you think about it like that - a lower interest rate would also mean that you'd be debt-free much sooner (half the time).
3. Total Interest Savings:
When you actually crunch the numbers, it shows how the 15-year mortgage can benefit you substantially – the total interest savings is clear. By setting up to repay the mortgage in half the time, you can potentially save tens of thousands in interest payments, which would open up funds for other financial ventures later in life.
The 30-Year Mortgage: Flexibility, Lower Monthly Payments, and Possibly Larger Interest Write-offs
1. Budget-Friendly Monthly Payments:
For those who value flexibility and lower monthly mortgage payments, the 30-year mortgage might be best. The longer term or repayment period makes it more manageable monthly, which gives you some room to accomplish other things like paying down your credit cards or revolving debts.
2. Making Room For Investments:
Choosing a 30 year mortgage can free up room for monthly cash flow that can be used to invest into other properties or ventures. Whether you are contributing more to retirement accounts to watch them grow, beginning a new business, or pursuing something else, the lower monthly mortgage payment can open up a lot of options for making some other moves.
3. A Hedge Against Inflation:
In the big scheme of things, the impact of inflation can really hit hard when you have higher payments, and you may appreciate the value of a fixed 30 year mortgage. With a 30-year mortgage, you would guarantee paying a fixed amount for an longer period of time, in-turn hedging against inflation and possibly lowering the true cost of homeownership.
The Mortgage Choice: Balancing Your Goals and Your Long-term Financial Health
Whether you're in Orange County, CA or somewhere else - inflation has hit us all pretty hard. The choice between a 15-year and a 30-year mortgage really comes to your own personal goals and what you value most. You have to make sure that you can support the 15 year mortgage, as the payments will most definitely feel heavier - you want to be sure that you have your bases covered in case you experience any hardship.
If paying down the mortgage loan and building equity is a top priority, the 15-year mortgage is not a bad option. On the other hand, if you're wanting flexibility in your budget and your goal is to have more cash-flow monthly to allocate funds to other investments, the 30-year mortgage may be a better fit.
Considering factors such as stability of income, your longer financial game-plan, and try to limit risk. Talk with a highly-experienced mortgage advisor like Ross Varahrami and he can be sure that you understand the benefits and disadvantages of both while providing a personalized quote for each option. This way, YOU will know what is best for you after the picture is clear. Owning a home is a big venture that's filled with bumps and blessings.
