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Put another way, a 15-year loan accrues principal much more quickly than a 30-year loan, so you get to own your house in half the time.
However, Rey cautions, because you are building equity faster and paying down the loan sooner, a 15-year mortgage requires higher monthly payments.
“Get a lender to help you calculate the overall savings of the 15-year loan versus the 30-year mortgage,” suggests Rey. In the end, though, base your decision on your circumstances and overall financial plan, such as whether you are nearing retirement age and also will have to shell out college expenses for children, in which case a 15-year loan may not be for you. Remember that your spending habits, budget, and financial goals should all be considered before making a final decision.
Not sure if a 15-year or 30-year loan is right for you? You could consider the 40-year loan, which often entices those looking for smaller monthly payments.
“While this may seem appealing, the shorter-term loan is usually more advantageous for the homebuyer,” says Rey. The drawback of a longer loan becomes apparent simply by calculating the cost of additional interest payments, which can total thousands for the privilege of just saving the difference of a few dollars in monthly mortgage payments.
For more information on real estate, please contact CENTURY 21 Award at info@century21award.com, (800) 293-1657, or CENTURY 21 Award.
