If you’re in the process of buying your new home, you are probably facing the many decisions that come along during home buying process, including your mortgage choices. Typically, many home owners opt for a 30-year mortgage because it results in the lowest monthly payments, but could there be a better option for the long run? Find out in this Time article, why you should consider getting a 15-year mortgage.
Save more money
Taking out a 15-year mortgage dramatically cuts your home-loan repayment time. The faster you repay the loan, the less in interest you need to pay. This can save you tens of thousands of dollars over the (shorter) life of your loan. A 15-year mortgage also usually offers better interest rates than other loan products, says Debbie Todd, a CPA who runs 1 Hour Impact.
Curious about just how much money you could save? Check out this mortgage calculator and plug in the numbers specific to your situation. You can compare amount of payments, interest rates, and more. Seeing the difference between paying off your mortgage in 15 years versus 30 years could be the motivation you need to consider a 15-year mortgage.
Build more equity
When you repay your mortgage faster, you don’t just save money — you build equity in your home faster too. Combine a shorter mortgage term with rising home prices, and you could exponentially grow the amount of equity you have.
This is beneficial for several reasons, especially if you want to refinance the loan down the road. “Since you are paying principal faster with a 15-year note,” explains Therese R. Nicklas, CFP, “you will be building equity faster, making refinancing potentially easier.” With a smaller loan-to-value ratio, the risk you present to your lender will be smaller, so you should have more financial opportunities.
Reduce pressure on your monthly budget in retirement
Getting a 15-year mortgage might help if you plan to retire in the next 10 to 20 years. Many people want to downsize before they retire, and that means buying a new home. “Choosing a 15-year mortgage allows you to reduce the strain on your cash flow in retirement,” says Eric Roberge, a financial planner who runs Beyond Your Hammock in Boston, MA.
“You can take advantage of stronger cash flow while you’re working to make the bigger monthly payments that a 15-year mortgage requires and pay off the loan before you retire,” Roberge says. “Then, when you do retire, you won’t have to pull as much out of your savings to cover living expenses since your loan will be gone.”
