Deciding between a 15-year mortgage and a 30-year mortgage may seem like an easy choice for you – depending on your income level. Many people prefer going with a 30-year mortgage because of the lower monthly payments compared to the 15-year loan.
While this is true, interest accumulated over the span of the extra 15 years of a 30-year loan is enough to almost buy another house. That’s a lot of money. If you’re credit is subpar and you receive an interest rate of about 8%, you’re practically giving away thousands of dollars.
A 15-year loan isn’t for everybody. Because the term of the loan is shorter, your monthly payments will be significantly higher. This turns off a lot of prospective home buyers because they can either not afford it or want a little extra financial blanket by having a lower monthly payment.
Because 15-year loans have less of a risk than 30-year loans, expect to see a dip in interest rates of almost a full percent. While it doesn’t sound as glamorous as 10%, just know that that measly one percent could save you a thousand dollars in the long run.
If you can afford the higher monthly payments, a 15-year loan is right for you. If you are a home buyer with an adequate job but just can’t seem to afford paying twice a 15-year loan’s monthly, a 30-year loan is preferable for you. It’s important that you carefully consider your finances and how much you’ll be affected by either loan’s interest rate. It’s better to stay safe then end up digging yourself into a hole.