When looking to finance a new house, there are usually two types of loan available: 15- and 30-year terms. Both come with a fixed payment, but differ in terms of interest rates and payment duration.
Most homebuyers choose the 30-year mortgage because the monthly fees are lower and it allows for the purchase of a more expensive home. The 15-year loan, on the other hand, gets little attention because it has higher monthly payments. Choosing between these loan terms can depend on different factors, including your financial situation and goals.
Read on to learn more about the pros and cons of the two.
This loan builds equity in the home at a faster pace. The monthly payments for this are a little higher than a 30-year mortgage, but the interest rate is lower most of the time. This also enables you to pay less than half of the total interest of the traditional mortgage.
Buyers with established careers and higher incomes can choose this kind of mortgage. City Creek Mortgage and loan experts say that it better to take this term if you can easily afford the house you want and when the interest rates and fees are low.
This is the most popular type of loan for people buying homes. The 30-year fixed rate mortgage suits more financial situations than any other loan term. While there are lower monthly payments, it comes with a higher interest rate.
The low payments on this mortgage allow you to use the extra money for savings or other expenses. In case you want to increase your monthly payments, you can increase the equity that is in the home.
Which is Better?
When deciding between these terms, it is best to take a broad look at your situation. When it comes to interest rates, the 15-year loan is the better option. The only problem is that not a lot of people can afford this mortgage. Those who are worried about business failure or job security may choose the 30-year term because of the lower fees that come along with spreading out the loan length.
Determining which loan is right for you can be confusing. It is important to understand the pros and cons of each and to evaluate your current financial situation before choosing one. You can consult a reputable lender or loan company to help you decide which term is better for you.