An overview of the 15-year mortgage
When purchasing a home, it is vital to research a variety of mortgage options. Consider a 15-year mortgage. Although 15-year mortgages are not as common as 30-year mortgages, both plans offer great opportunities for home buyers. According to the Mortgage Bankers Association, only 5% of home buyers applied for a 15-year mortgage in 2015. These numbers have been decreasing in recent years. Despite these patterns, 15-year mortgage plans provide great options for purchasing a home.
When should borrowers consider a 15-year mortgage?
Generally, borrowers should consider a 15-year mortgage loan if they plan to pay off their mortgage quickly. Additionally, 15-year mortgage plans are perfect for those with a steady long-term income who can afford larger monthly payments. Furthermore, interest rates are lower with a 15-year mortgage.
Before deciding on a 15-year mortgage, consider pros and cons of a 15-year mortgage loan.
Pros of 15-year mortgages:
As compared to a 30-year mortgage, 15-year mortgages save a lot of money. Since you are borrowing money for only 15 years, this mortgage plan will have low-interest rates. It is less expensive to borrow money for a 15-year mortgage. For example, compare a $300,000 loan for both a 15-year mortgage and a 30-year mortgage. Offered at a 3.25% interest rate for 15 years, a $300,000 loan results in $79,441 in total interest paid. For a $300,000 30-year mortgage loan with a 4% interest rate, the total interest amount pain will be $215,609. Using a 15-year mortgage loan generates a total interest amounts nearly two-thirds less than a 30-year mortgage. Shorter-term loans are also considered less risky and cheaper for banks.
Cons of 15-year mortgages:
Shorter mortgages produce higher monthly payments. For example, a 15-year loan for $300,000 at 4% interest rate has a monthly payment of $2,219. A 30-year mortgage at the same interest rate will have a $1,432 monthly payment. High monthly payments may prohibit purchasing a better house. A higher monthly payment also means less liquid saving and fewer opportunities to invest or pay other loans.