Is a 15 year mortgage right for you?
When it comes to buying a home, there are a lot of factors at play. Before you go house hunting, you’ll have to calculate how much house you can afford by determining what type of mortgage you get. For example, if you decide to spread the payments out over 30 years with a 30 year mortgage, your monthly payment will be less than if you choose a shorter term like a 10 or 15 year mortgage. There are a few ways of looking at the options. On one hand, a lower monthly payment means you might be able to afford to spend more on a home. On the other hand, a higher monthly payment may mean that you will be done paying off your mortgage sooner, and then you can direct the extra money to something else.
A 15 year mortgage is a mortgage that will be paid off completely in 15 years if all of the payments are made on schedule. Typically, 15 year mortgages have a fixed rate, which means the interest rate is the same throughout the life of the mortgage. Because the timeline is shortened than that of a 30 year mortgage, the payments are typically much higher than they would be for a 30 year mortgage.
Some benefits of a 15 year mortgage include:
• Build equity faster - By paying down the principal balance quicker, along with a lower interest rate, you will be able to build equity faster. Equity helps you do thinks like borrow money against your home. The money can be used for home renovations, education expenses, a new vehicle, and more.
• Enjoy full homeownership sooner - The faster you pay off your mortgage, the sooner you’ll be able to call your home your own. If you don’t have to pay your mortgage each month, you can put the money toward something else.
Some disadvantages of a 15 year mortgage include:
• Larger monthly payments - On average, a 15 year mortgage will come with double the monthly payments of a 30 year mortgage.
• Opportunity cost - By putting more money into your mortgage each month, you will have less money for other investments like retirement, college savings, or home improvements.
• Smaller range of home affordability - Having a higher monthly payment means you’ll qualify for a less expensive loan, and therefore you may have to compromise on the size or location of your home.
Refinancing to a 15 year Mortgage
If you already have a mortgage, it may be worth looking into refinancing. Refinancing can help you make adjustments to your term, your monthly payment, or your interest rate. Depending on your unique situation, a 15 year mortgage may be a better option than what you have right now.