15-Year or 30-Year Mortgage: What’s the Difference?
When a Dana Point home buyer is choosing what type of mortgage they want to use to purchase their new home, they have a lot of different options. Two of the most common choices for a home loan are the 15-year and 30-year mortgages. While they have a lot of similarities, they also have a lot of key differences buyers need to be aware of before choosing the one best for them. Here is everything a home buyer should know about 15-year and 30-year mortgages.
The first difference a buyer is going to notice about the two mortgages is they have different lengths, which can be a major signifier if the buyer wants to use it or not. Because 30-year mortgages last so long, they make a good choice for buyers who are looking for a home to stay in for the rest of their lives. On the other hand, 15-year mortgages can be a better choice for homeowners who plan on moving again in the future.
How much a monthly mortgage payment costs will determine if a buyer can afford the home they want. When using a 15-year mortgage, the payments are higher in order to finish paying the loan off faster. In contrast, 30-year mortgages have lower monthly payments, which can make them more accessible from a financial viewpoint, but the homeowner will have to spend twice as long paying the loan off.
Home loans with shorter lifespans are naturally going to have lower interest rates than longer-lived mortgages. While a 15-year mortgage may have higher monthly payments, the homeowner will pay less interest than a homeowner using a 30-year mortgage. If a homeowner is trying to save money, they can do so by opting for a shorter mortgage. While they may pay higher monthly payments, they’ll pay less interest in the long run. 30-year mortgages also tend to have higher APR than 15-year mortgages.
Because 15-year mortgages have a much higher monthly payment than 30-year mortgages, buyers need to understand they come with more risk. If a homeowner with a 15-year mortgage loses their job or has unexpected medical expenses, it can cause the homeowner to miss payments and possibly lose their home. 30-year mortgages are safer in comparison to 15-year mortgages. Even though they take longer to complete, they require lower payments, which are easier to meet if something goes wrong somewhere down the road.
One major factor that drives people to buy homes instead of renting is equity. Equity is naturally built by repaying a home loan, and a 15-year mortgage will build equity faster due to the higher monthly payments. If the buyer doesn’t mind building their equity at a slower pace, a 30-year mortgage will still do the same job.
Which Mortgage Is Best?
Using a 15-year mortgage is like a sprint, while a 30-year mortgage is like a marathon. 15-year mortgages are high risk, high reward, while 30-year mortgages are steady and constant. The most important factor to consider when choosing a mortgage is the buyer’s personal finances. 15-year mortgages can come off as the better choice, but this isn’t true for everyone. Buyers need to decide how much money they can afford to devote to a mortgage payment each month in order to choose the right type of mortgage.
Both 15-year and 30-year mortgages can be great options for a home loan, so long as the buyer understands what their loan of choice entails. Home buyers who are still unsure which type of loan is best for them should consult their lender for more information and personalized advice.