Becoming a homeowner is all about making choices both large and small. In terms of your mortgage, you can choose between a 15- and 30-year mortgage. The experts of Wyndham Capital Mortgage are here to explain the difference between the two and help you reach the best decision for your specific circumstances.
How to Choose Between a 15 and 30 Year Mortgage
You Can Go With This...
One great advantages of opting for a mortgage with 15-year terms is you’ll be able to pay it off faster. This could be a great option if you hate being saddled with debt longer than absolutely necessary. And because you’re only paying your mortgage for 15 years, you get to cut down on the amount of interest you accrue over the long term. Yet another great thing about 15-year mortgages is you can potentially build equity in your home faster. If you aren’t familiar with the term, equity is the difference between what your home is currently worth and the amount you have to pay your lender. One thing to bear in mind with your home’s value is that it’s also influenced by the current market. It’s entirely possible that your property’s value increases the same with a 15-year mortgage as it would with a 30-year mortgage, it all depends on the current market.
In regards to the disadvantages of a home loan with 15-year terms, you’ll have a higher monthly payment than you would a mortgage with a longer length. Depending on your current and future finances and budget, this might not be a good option.
...Or You Can Go With That
The first thing you should know about 30-year mortgages is they’re the most common. You might even be under the impression that you have to choose a 30-year mortgage. If you’re unsure about your financial future, or if you prefer to sway to the side of caution, you might feel the lower monthly payments that come with a loan with 30-year terms to be a better option. Even if you can currently afford the payments of a shorter mortgage, you might not always be able to. This is especially true if you suddenly find yourself laid off or otherwise unemployed.
Another plus in the 30-year home loan column is you’ll have more cash to use on your other financial goals. You might be fine with longer loan terms if it means you can pay off your credit cards and car payment faster or put more money in savings. Once you’re on better financial footing, you can devote more of your funds to larger mortgage payments.
Making the Best Decision
While your loan officer can make a suggestion as to which loan is likely the best for you, the final decision is ultimately yours. If you’re buying a home for the first time, the most essential factors to focus on are how much of a disposable income you’ll have and how much you have in your personal savings account. A 15-year home loan can chew a great deal out of your income, which means you won’t have as much to devote to your other financial obligations. You should also think about the fact that the interest you pay on your mortgage is tax deductible. Hopeful homeowners who are independent contractors, high earners, or self-employed or make a modest income and need more write-offs when tax season rolls around may be better suited for the higher interest payments that come with longer mortgage terms.
Consider the above pros and cons when deciding which mortgage terms to accept. Gather info from your mortgage lender as well as your friends and family who currently have mortgages. Always go with your gut, and be sure your finances are prepared for any contingency. Want more info? Let us help!