If you are an aspiring homeowner, it is easy to overlook the crucial parts of buying a house. There are a lot of things to look into, such as location, age, and layout. However, the more important factors are learning the different mortgage options and how they can affect you in the future.
What would be beneficial for you? Is it a 15-year or 30-year loan? It is necessary to learn the difference between the two options before undertaking a major financial commitment. Keep reading to learn more about what you should consider and the factors that come into play before taking out a mortgage.
Monthly Payment
Both the 15-year and 30-year mortgages have fixed monthly payments. As the terms suggest, the only difference is the duration of paying the loan. The 15-year mortgage has a higher monthly payment because you are paying over a shorter period of time than the 30-year mortgage. On the other hand, the 30-year mortgage’s longer term leads to a lower monthly payment.
A homebuyer should also be mindful of the interest rates. It is important to note that a 15-year mortgage pays off the principal faster, so it’s expected to have lower interest rates than a 30-year mortgage. Homebuyers who want to have an idea about a property’s monthly payment and interest rate can use mortgage calculators readily accessible on the internet.
Personal Situation
Everyone dreams of having their own home. However, the priority of each individual varies from one another. This factor is also noteworthy when choosing between a 15-year or 30-year mortgage.
A 15-year mortgage is suitable if you want to prioritize paying off the property faster. This means you should also have more cash allocated for monthly payments. People eager to live on their new property and those who don’t want to be bothered by a lengthy payment period can opt for the 15-year mortgage.
Alternatively, the 30-year mortgage fits homebuyers who want to save cash by making smaller payments. These are people who have a more limited budget aiming to fund their other goals or those who actually have enough budget but are planning to grow their money by investing.
Choosing between a 15-year or 30-year mortgage can be influenced by the aforementioned factors. It all depends on a person’s financial situation and priorities, especially considering that buying a home isn’t the only commitment that an individual is tied to in this day and age.
Choose Predictability
A 15-year mortgage allows you to pay off the loan in half the time as a 30-year mortgage. Thus, you avoid paying a bigger interest rate. Because of its fixed-rate nature, the monthly payment for a 15-year mortgage will never change.
The amount going toward the interest also decreases over time. This is because a 15-year mortgage will speed up the payment for interest, and more of your money goes to the principal every month. It’s a faster way to build equity in your home.
The predictability of having a fixed monthly payment and knowing that you will be debt-free sooner is one thing to consider when choosing between the two loan options.
Go for Flexibility
A 30-year mortgage will always have a lower monthly payment than a 15-month mortgage. This is crucial, especially when an unexpected event arises, such as job loss, illness, or other financial emergencies.
Paying a cheaper monthly rate allows for more budget flexibility. When choosing between the two mortgage options, it’s essential to evaluate how a higher monthly payment plus unexpected expenses can affect your finances in the future.
Connect With a Loan Expert
Both the 15-year and 30-year mortgages are long-term commitments that require you to reexamine the best option based on your financial status and life goals. So be sure to run the numbers and have a firm plan to secure your future as an aspiring homeowner. For more information, call Firefighters Credit Union’s mortgage loan experts in Wisconsin.
