When you are mortgage shopping, you’re often confronted with a confusing array of rates, terms, lending criteria and on and on. One of those options is the term of the loan. Both 15-year mortgages and 30-year mortgages have their own set of pros and cons. You should consider these against your own financial profile.
The Difference Between a 30 and 15-Year Mortgage is More Than Meets the Eye
Today, nearly 90 percent of borrowers choose a 30-year fixed mortgage. But many borrowers may not understand the advantages of the 15-year term mortgage. Obviously, the term is shorter for a 15-year mortgage but over the full life of the mortgage, borrowers will pay more than double for the 30-year option.
The Difference in Amortization
As a mortgage continues to be paid, the principal that is paid down will change over time which is determined by the amortization. At the outset, most of the payment goes toward interest. This then declines over the life of the loan when more goes increasingly toward principal.
The term that the two mortgages are amortized is consequently different for each with more money going toward interest for a longer duration with a 30-year mortgage. This means that the principal balance is declining more slowly with the 30-year loan.
Advantages of a 30-Year Mortgage
There are advantages to a 30-year fixed rate mortgage. Primarily, borrowers are attracted to it for the lower monthly payment. This can also allow a borrower to buy more house by being able to qualify with lower payments. Having lower payments can also free up money for other things.
Advantages of a 15-Year Mortgage
15-year mortgages pose less of a risk for lenders. This means that they will offer a lower interest rate than for a 30-year loan. This can represent anywhere from a quarter of a percentage point to a full percentage point and add up over the years. The combined effect is a quicker amortization and a lower interest rate.
Unfortunately, the drawback of the 15-year mortgage is the larger monthly payment. But if a borrower can afford to pay the higher payment, particularly if he or she will be staying in the home for any duration, equity is building up faster over time. Also, if a borrower is anticipating staying in the home long term, having a mortgage paid off by the time they hit retirement is a great incentive.
What to Consider
The best way to decide which mortgage to pursue is to consult with a Columbus mortgage company. They will help you understand how each mortgage may or may not be a fit by considering
- Your income
- Your debt
- Your household expenditures
- Your credit score and financial history
- Any savings or other investments
Call a Professional
If you have questions about shopping for a mortgage, your best resource is to contact an Ohio mortgage broker who can answer any of your questions and help you decide which mortgage product is best for you. A professional mortgage specialist can help you understand your options and offer advice. Call Liberty Capital Services today at (614) 505-0620 for a free consultation to understand your mortgage options.