Do you know which mortgage term is right for your situation? Borrowers can choose from a 30 year or 15 year mortgage loan, each offering different benefits depending on your needs. Mortgage terms are an important aspect to consider when purchasing a home. The average cost of your monthly mortgage payment will depend on what type and how much interest rate your term has. This guide will help make your decision an easy one! Partnering with an experienced mortgage broker can assist you in making your decision as well.
What is the Difference Between a 15 Year Mortgage and a 30 Year?
When you are weighing your options for a mortgage, it’s important to know the differences between different terms. In simple terms, a 15-year mortgage is structured to be paid off over a 15-year period, a 30-year mortgage in 30 years.
The interest rate on a 15-year mortgage is lower because the term is shorter, but your monthly payment will be higher. Over the life of the loan, you pay less in interest with a 15-year loan, but more each month.
The Advantages of 15-Year Mortgages
Lower Interest Rates
There are many benefits to choosing a 15-year mortgage. Over the full life of a loan, a 30-year mortgage will cost more than double the 15-year mortgage alternative. Interest rates will be lower–from a quarter of a percent to a full percent (or point) less.
Achieve Homeownership More Quickly
Paying off your home sooner means enjoying the benefits of full ownership sooner too! The reduced stress from no longer having a monthly mortgage payment to worry about can be a compelling incentive for investing in a 15-year mortgage!
Build Equity Faster
15-year mortgages also allow you to build your equity more quickly. Having equity in your home gives you a resource you could utilize for home renovations, repairs, or other unforeseen reasons that may come your way.
The Advantages of 30-Year Mortgages
Lower Monthly Payment
The most popular mortgage plan is the 30-year mortgage, primarily because of the lower monthly payment associated with these types of mortgages. Lower mortgage rates allow borrowers to use their monthly budget for other important goals like education, retirement, investments and more!
For most, a larger home with a larger price tag requires investing in a 30-year mortgage to afford the monthly mortgage payment.
Larger Tax Deductions
Worried about that higher interest rate? Tax laws allow home buyers to deduct mortgage interest from their annual taxes. Most of your initial mortgage payments pay off interest, which results in a significant tax deduction.
Make Extra Payments
Borrowers that invest in a 30-year mortgage that want to pay their mortgage off more quickly but just can’t afford the high mortgage payments of shorter-term mortgages can make extra payments. Check with your lender to make sure there are no prepayment penalties, but this is a great way to enjoy your lower mortgage payments but still pay your mortgage off on your terms.
Smaller monthly payments mean that most borrowers applying for a 30-year mortgage will be approved over those that apply for a 15-year mortgage term.
Choosing a mortgage term that will work for your short and long term goals is made easier by partnering with an experienced mortgage broker like us.
Contact First Coast Mortgage Funding today to discuss the pros and cons of 15-year mortgages and 30-year mortgages to start your home purchase off on the right foot. With more than four decades of experience serving Ponte Vedra, Jacksonville, and St. Augustine, our team has you covered.