Should You Get a 15-Year or 30-Year Mortgage?
The most common mortgage periods are the 15 and 30-year periods. While you can find some for the median 20 years and some stretching for 40 years, these are the periods most opted for by the majority of borrowers. But which one should you be getting?
There are some great advantages on choosing the shorter term loan. One is of course, you'll be in debt for a shorter amount of time. But what most people don't realize is you'll be paying less in interest for this loan. Mortgage rates are normally lower, so while you'll pay more every month your interest payments will be significantly less.
The longer term mortgage has a distinct advantage for those younger homeowners – you pay less every month. While interest rates are higher, the mere fact that the monthly payments are less means that there is more money to spend every month. And when you're worrying about expenses for your family and paying off other debts like your college loan and your credit cards, this slightly more expensive option may be worth it.
Why is it that way? The 30-year mortgage payments go towards interest at first and only pay for the principal much later on.
But what if you want to pay off your loan faster but can only afford to take out a 30-year loan? The easiest way then to be debt free in the shortest amount of time would be to pay a little extra every month. These pre-payments work like magic: you can speed up your payments by eating away at the interest yet be able to pay off the minimum in case you run into a rough patch.
The only thing required from you here would be the discipline to pay it off with that extra cash. Think of it as a gift that you give yourself every month – a quicker time to be debt free!