The main difference between 15-year and 30-year
mortgage may seem obvious, but there are a few things to consider when making
this decision. 15-year loans are going
to have monthly payments that are substantially greater than a 30-year loan,
but you pay less in interest. 30-year
terms have lower monthly payments, but you pay significantly more for the house
in the long run, due to the amount of interest paid over a longer period of
time.
This decision is about more than just the math; there
are other important considerations, such as retirement savings, risk tolerance,
and discipline. Consult with your mortgage lender and run some numbers using
calculations for both 15-year term and 30-year term. Once you have some figures
to work with, consider the following points before making a final decision.
* What can you afford? A hybrid version of this decision
is to take a 30-year mortgage and pay it off in 15 years by sending in extra
payments. Doing this you will pay slightly more in interest than with the
15-year interest rate, but still significantly less than with the 30-year loan.
*
If you take a 15-year term with a higher payment, make sure you have a
wide safety net, such as a savings account with a large balance, to cover any major
unexpected expenses or loss of income. If you don’t have this kind of financial
resource, you may want to stick with a 30-year term and use any extra money to
build a strong savings account.
* If you are considering a
15-year term mortgage, make certain you will still have the resources to put as
much into your retirement accounts as possible and still meet your other
savings goals. If either of those financial resources will be at risk by you
taking the shorter mortgage option, it may be wiser to protect those and go with
the 30-year term.
* The 30-year borrower will
pay less in annual taxes because they are paying more interest than the 15-year
borrower.
In the end, your financial situation will determine
the right mortgage term. At Intercoastal Mortgage Company we will be pleased to
help you look at the options and consider these and other important questions.
That is our specialty, so contact me and we can go over what’s best for you.
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