Should I Select A 15 Year Or 30 Year Mortgage?

You have found the home you want and are in the process of getting your mortgage approved. You’re asked if you want to go with a 15-year fixed mortgage or a 30-year fixed mortgage – which one should you do? Both mortgage options have their share of pros and cons and depending on your situation will help to determine whether to opt for a 15- or 30-year fixed mortgage on your new home.

Here is a highlight of the benefits of each mortgage loan option:

15 Year Fixed Mortgage Loan

A 15-year mortgage loan takes your total loan amount, including interest, escrow costs, and PMI, and spreads it over 180 months, or 15 years. As a result, your monthly payments will likely be higher than if you went with a 30-year mortgage loan; however, this option will enable you to build up equity in your home much faster. It will also help you reach the point where PMI can drop off sooner.

Many individuals prefer this route if they plan to be in the home long-term, like soon-to-be retirees who don’t want to have a mortgage payment when it comes time to retire or growing families that plan to raise their children in the home they are buying.

As an added benefit, 15-year mortgages typically are offered with a better interest rate than a 30-year mortgage. This is because the lender expects to recover more of the loan in a shorter amount of time and risk of the home being sold anytime soon is unlikely.

30 Year Fixed Mortgage Loan

Like with the 15-year mortgage loan, the 30-year mortgage takes your overall loan costs and spreads it out over a series of months – only in this case its 360 months. As a result, payments are much lower than the 15-year mortgages – even with the slightly higher interest rate these loans can have compared with a 15-year.

This is often preferred for first time home buyers, young homebuyers, and those with a strict budget. It allows them to own their own home but on affordable monthly payments. 30-year mortgages are also the more popular option – nearly 66% of all mortgage applications are for a 30-year mortgage option.

Although you may not build up a lot of equity in your home sooner, the lower payments do enable a great opportunity for many borrows to build up their own savings. The extra funds can be set aside for future use like emergency repairs or college funds for children – or they can be applied as an additional payment to your principal balance.

What It All Boils Down To

Determining which mortgage loan option you prefer will essentially come down to one main factor – your current and projected financial situation.

  • What does your monthly budget allow?
  • What other bills and debts are you responsible for?
  • Do you have any savings or investments?
  • Are you expected to continue to make the same amount or more in the coming years?
  • Does your income fluctuate with the busy seasons of your career field?
  • Do you plan to live in the area you are buying in long term or possible for just a few years?

You can use a mortgage calculator to estimate your monthly payments and give you a general idea of what to expect to pay for either a 15-year or 30-year mortgage. For a more exact idea of what you can expect to pay or for help in determining your best loan option, you can contact one of our home loan specialists at (813)655-4663.