15-year vs. 30-year mortgage

15-Year Vs. 30-Year Mortgage

Deciding between a 15-year or a 30-year mortgage can be a difficult decision. 15-year mortgage terms usually have a lower interest rate, so while you’ll be paying the loan back in half the time, you’ll also be paying less interest. Of course, the decision depends on your circumstances. There are three major factors you should look into before making your decision.

  1. Affordability
  2. First, you should note the difference of payments between a 15-year loan and a 30-year loan. Sometimes the monthly payment for a 15-year loan is almost twice the amount of a 30-year loan, but sometimes the amount is not too much different – it all depends on your interest rate.

  3. Your Personal Finances
  4. If you have a lot of other things that you have to pay for such as car loans or student loans, then you should look at your overall finances to determine whether you can afford a 15-year loan. You’ll certainly save a lot of money with a 15-year loan since you’ll be paying less interest, but you’ll also have less money month-to-month to pay for any other expenses. You should also make sure you’re putting aside money for retirement or college funds. If you are putting all of your money into your 15-year mortgage payments, but no money into retirement or college funds, then it’s not worth it. In order to be able to truly be safe with a 15-year mortgage, you should have at least six months salary of savings to fall back on in case of an emergency.

  5. Your Job and Your Age
  6. Those who choose a 15-year loan should have a stable income. You may be able to afford the payments right now but if you lose your job, you may not have enough income to refinance to a 30-year loan. Your age is also a factor in your decision. If you are in your 50’s you could pay off your mortgage by the time you retire, but that also means less money goes into a 401k or IRA.

Best of Both Worlds Option

Still not sure if you’ll be able to make 15-year loan payments? Take out a 30-year loan and pay more into the principal amount when you can. If times are tight then cut back to the lower payment. You’ll be paying a higher interest rate but at least you’ll have the security that you can make the payments.

Fresno and Clovis Real Estate

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