Buying a home is a great investment and a way to escape annoying neighbors and other inconveniences associated with living in an apartment complex. If you are looking to escape the upstairs neighbor who likes to play their music as loud as possible in the wee hours of the morning, purchasing a home is the perfect route to go. However, most homeowners are unable to pay the full value of the home in cash and use a home mortgage to purchase their dream house. There are many options to consider when purchasing a mortgage and one of your biggest decisions will involve purchasing a 15 or 30 year mortgage. Although 30 year mortgages are the most common, there are advantages and disadvantages to both.
15 Year Mortgage
One of the best advantages of a fifteen year mortgage is that you will be done making payments in just fifteen years. Mortgage and rent are typically items that eat up most of a person’s budget. If you are able to own your home free and clear in just fifteen years, you will suddenly see a large chunk of your paycheck become available for that huge vacation, new car, or anything else you can imagine. A fifteen year home mortgage is great for individuals who are looking to retire early or just want to cut down their expenses significantly.
Another awesome feature of fifteen year mortgages is that you will save on interest costs. If your credit is not where you would like it to be and you have to settle for a higher interest rate, a fifteen year mortgage may be for you. For example, say the home you are purchasing is priced at $200,000. If you finance it at four percent interest over the course of fifteen years, you will end up paying $66,288 in interest. With a thirty year mortgage, you will end up paying $143,739 in interest by the time you are done. The difference between these two figures is significant.
Although purchasing a fifteen year home mortgage can save you money in the long run, it might not work into your budget. Since you are required to pay off the home in a shorter time period, your monthly payments will be higher than a thirty year mortgage. If the home you are purchasing is a bit more expensive then you hoped, then purchasing a fifteen year mortgage may not be in your best interest.
30 Year Mortgage
Thirty year mortgages are the most common among home buyers. It is a common misconception among individuals that you are required to purchase a mortgage that spans thirty years. Although you are not required to purchase this type of mortgage, it will make your payments significantly less every month than a fifteen year home mortgage. If you are unsure about your financial future or just want to make sure that you will never fall behind on your payments, a thirty year mortgage may be the way to go.
Because your payments are less than what you would pay every month for a fifteen year mortgage, you will have more money every month in your pocket. Although it is fun to spend this extra cash on enjoyable activities, you can use this money to increase the value of your home. If you purchased a fixer upper, then the money you save every month with a thirty year mortgage will allow you to turn your home into what you always imagined it to be. A thirty year home mortgage can also allow you to increase the amount you are able to put into savings and put away for unforeseeable financial bumps in the road.
One disadvantage of the thirty year mortgage is that it lasts for thirty years. If you are not committed to living in your home long term or unsure if you can afford a monthly mortgage payment, a long term mortgage may not be to your advantage. Because thirty years is a long time, make sure that you will be able to commit to a mortgage that spans over a full thirty years.
Ultimately, the type of home mortgage you go with is your personal decision. Many people will be able to advise you on what type of mortgage is best, but the only person that can fully understand your finances perfectly is you. Before you sign up for a mortgage consider what is best for your financial future.