Purchasing a home is a huge financial undertaking, and there are many options to consider. Getting a 30-year mortgage is one way to make a home more affordable by spreading out the mortgage payments. While a15-year mortgage is a lot more expensive in the short-term than a 30-year fixed-rate mortgage, there are greater long-term savings.
Here are some things to consider when weighing a 15-year vs. 30-year mortgage:
While your monthly mortgage bill will be 50 percent higher with a 15 year mortgage instead of a 30 year one, there are some other long-term benefits to consider.
Paying a home loan off in half the time can save you tens of thousands of dollars in interest. Not only is more principal paid earlier, but interest rates on 15-year mortgages are usually better.
Here’s an example of a $200,000 mortgage at 30 vs.15 years:
Mortgage type: 30-year 15-year
Interest rate: 4.5 percent 4 percent
Monthly payment: $1,013 $1,479
Total interest: $164,813 $66,288
That’s almost a savings of $100,000 by going with a 15-year loan. Divide that savings over 15 years and it’s about $555 saved per month.
Borrowers should make sure they have enough income to afford it, are able to manage their household debt, and have money in liquid savings for emergencies.
Paying your mortgage faster saves you money in the long run and also helps you to build equity in your home faster. This should make it easier to get approved for a home equity loan or home equity line of credit if the need arises.