With mortgage rates still hovering around record lows, many new homeowners and those who refinance are opting for the 15-year mortgage. A 15-year mortgage has a number of advantages over longer mortgages, but it also has at least one disadvantage. If you are looking for a home or thinking about refinancing, here are some things you should know about a 15-year mortgage so you can make a more informed decision.
Lower Mortgage Rates
When you decide to take out a 15-year fixed rate mortgage, you can expect to pay lower interest rates on your loan than you would with most other types of mortgages. As a result of lower mortgage rates, you pay less over the term of the loan than you would with a 30 year mortgage. You could save thousands or, in some cases, even tens of thousands of dollars by choosing a 15 year mortgage.
Shorter Repayment Period
The most obvious advantage of a 15 year fixed rate mortgage is that you will be done paying on it in half the time than you would be with a 30 year mortgage. If you are trying to get out of debt or if you hate to incur debt, the 15 year mortgage is ideal for you because of this advantage.
Larger Monthly Payments
One of the few drawbacks to taking out a 15 year fixed rate mortgage is that the monthly payments are often somewhat higher than with a 30 year mortgage. Most of the time, the larger monthly payments are not much higher than a 30 year mortgage, but they can be depending on the particular interest rate and terms of your mortgage loan. This is because the payments have to be higher in order to pay off the mortgage in half the time. However, as stated above, you will pay off the mortgage in half the time and pay less on the interest which will save you a bundle of money in the long run.
Before making the decision to go with a 15 year mortgage, realistically evaluate your income and your ability to pay the extra money each month. Take into consideration the cost of maintaining the home, providing insurance for it and paying the property taxes. You might be able roll all of these costs into one payment. Your monthly mortgage payment should be no more than about one-third of your net income so you can be sure to have money left over for groceries and other bills. If it’s possible with your income, a 15 year fixed rate mortgage is probably the best way to go.