Unless you are paying for your new home in cash, you’ll need to secure a loan to pay for it. A mortgage is a big expense that many adults carry, but deciding which type of loan is right for you depends on how quickly you want to pay it off, and how much you can afford each month. Here are some tips to help you decide between a 15-year mortgage and a 30-year mortgage.
1. Focus on your ultimate goals.
If your goal is to retire early and not have a mortgage payment once you retire, then a 15-year mortgage will get you to that goal faster. Since many adults are buying homes later in life, many are carrying their mortgage into retirement, which can be a financial burden when you are on a fixed income.
If your goal is to have a bigger house, and you aren’t worried about still paying on a mortgage while your kids are in college, then a 30-year mortgage may be right for you. It’ll give you a lower monthly payment, so you can purchase a more expensive home that will still fit within your budget.
2. Keep interest in mind.
The longer the loan is that you take out, the more interest you will end up paying. A 15-year mortgage will be paid off faster, so you will ultimately end up paying less interest. Interest rates are also lower for 15-year mortgages since lenders are more apt to give you a break for paying the loan off faster.
3. Flexibility is important.
Since a home loan is such a big expense, you want to make sure you can afford the monthly payments. Locking yourself into a 15-year mortgage may encourage you to pay off your loan faster, but it also doesn’t allow for much flexibility.
On the contrary, a 30-year mortgage gives you the option to pay it off early if you choose to. You can do this by making extra payments throughout the year, or paying one lump sum.
There are pros and cons to both types of mortgages. Determining which one is right for you depends on how much you can afford monthly and your ultimate financial goals.