When you are preparing to buy a home, one of your biggest decisions will be the type of mortgage you choose. While the majority of home buyers choose to have a 30-year mortgage, others instead opt for a 15-year mortgage. If you are comparing these two types of mortgages and trying to decide which will work best for you, here are a few factors that may help make your decision easier.
Substantial Savings on Interest
No matter whether you select a 15-year or 30-year mortgage, you will be paying thousands of dollars in interest. However, with a 15-year mortgage, you will be paying thousands of dollars less in interest. This is due not only to the fact that the 15-year mortgage is for a shorter loan term, but also that most of these mortgages come with lower interest rates. As to why this is, it’s because your lender will consider you to be at less risk of not paying off your loan.
If you are a first-time homebuyer or just someone who is on a tight budget, a 30-year mortgage may benefit you most when considering home loans. When you have such a mortgage, your monthly payments will be hundreds of dollars less than with a 15-year mortgage. In most typical situations, a 30-year mortgage will have a monthly payment that is $500-$600 lower per month than a 15-year mortgage.
30-Year Easier to Obtain
If you have had problems in the past with bad credit or experienced other financial difficulties, a 30-year mortgage is usually easier to get approved for over a 15-year mortgage. Most of the time, applicants for a 15-year mortgage must have very good credit, higher incomes, and a track record of success in paying back other long-term loans, such as for a car or other expensive items.
Rate of Home Equity Growth
As you make payments on your mortgage month after month, you build more and more equity in your home. However, with a 30-year mortgage, that rate of equity builds much slower than with a 15-year mortgage.
The Type of Home You Buy
Finally, think about the type of home you want to buy. If you opt for a standard 30-year mortgage, this can open you up to larger and more expensive homes. Since your monthly payment will be lower, you may be able to afford a home that otherwise would have been beyond your budget.
By taking many factors into consideration and discussing the pros and cons of these mortgages with lenders, you can decide if a 15 or 30-year mortgage is right for your situation.