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15-Year vs. 30-Year Mortgage

What are the primary differences between a 15-year and 30-year mortgage plan? Which option is better?

A mortgage is an excellent option for purchasing a residential property if you can’t pay the full cost out of pocket. However, many people find it challenging and daunting to make an informed decision about a 15-year or 30-year mortgage. Today’s article will differentiate between these two options, allowing you to choose the one that best fits your needs. Read on! 

Advantages of 15-Year Mortgage Loan 

Choosing a 15-year mortgage plan allows you to repay the debt in half the time. You will pay less interest with few payments, and depending on the loan size, you can save tens of thousands of dollars. 

Besides, a 15-year mortgage plan has a low-interest rate. Lending companies charge a lower interest rate on this option, translating to more savings over the course of your mortgage plan. 

A 15-year mortgage loan is directly proportional to faster and more equity. For example, you pay more of the principal efficiently and quickly. So this means you build equity in your home faster, allowing you to tape down the line when needed. 

Disadvantages of 15-Year Mortgage Loan 

Although a 15-year mortgage loan offers various benefits, it has a few downsides. First, it requires a higher monthly payment. Simply put, you will pay more each month with a shorter loan. 

Some lending companies charge 40% or higher monthly compared to a 30-year mortgage. When you choose a 15-year mortgage, the lending company may not qualify you for a substantial/larger loan. 

So, if you want to purchase a luxury home that costs more than the amount of money the company lends you with a 15-year loan, you may not achieve your goal. Therefore, you must analyze the requirements before opting for a 15-year loan. 

Advantages of 30-Year Mortgage Loan 

A 30-year mortgage loan offers a wide range of benefits. For example, the lending company will charge a lower monthly payment due to a longer time frame. Likewise, you can easily qualify for a 30-year mortgage loan because it enables you to meet debt-to-income ratio requirements. 

Besides, a lower monthly payment allows you to save more money for other crucial tasks, such as starting/running a side business, savings for your children’s education, emergency funds, etc. 

Disadvantages of 30-Year Mortgage Loan 

Although you can leverage a lower monthly payment, a 30-year mortgage has higher interest rates. Remember, a 15-year mortgage loan is less risky for banks and lending companies than a 30-year loan. 

Because it costs companies less to make short-term mortgage loans than long-term plans, a 30-year mortgage program has a higher interest rate. Besides, lower payments mean you can’t build equity efficiently and quickly. So, this also extends the period to pay for private mortgage insurance. 

Which Option is Better?

Choosing between 15-year and 30-year mortgage loan programs/plans depends on your financial situation and personal preferences. Both mortgage plans can have fixed monthly payments and interest rates over the life of the loan. 

Simply put, a 15-year mortgage means you can repay the loan in 15 years. On the other hand, a 30-year mortgage means you will pay off the loan in 30 years. As mentioned earlier, a 15-year mortgage has a higher monthly payment and lower interest rate. 

In contrast, a 30-year mortgage has a lower monthly payment but a higher interest rate. So, if you can manage higher monthly payments and want to build equity in your home quickly, go for a 15-year mortgage. Finally, consider your financial situation, credit history and current score, down payment, and monthly income before choosing a plan that fits your needs.

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