15 Greater Than 30? The advantages to a short-term loan

 The 30-year mortgage has been the standard when it comes to mortgages, however, that doesn't mean that's the only option. In fact, home owners can use a 15-year mortgage. The 15-year mortgage offers lower interest rates than the standard 30-year mortgage, but you will have to pay it off in 15 years instead of having the extra time that a standard 30 year mortgage has. Continue reading for Benefits and Barriers of a 15-year mortgage.

Benefits:

Pay Less Interest

You will be paying a lower interest rate. You will be paying interest for half the time than a 30-year mortgage.

Example: Say you purchase a house for $300,000 with 20% down, or $60,000 down.

On a 30 year loan, with a theoretical rate of 2.75%, you would end up paying $352,720.80 on that original $240,000 loan. That's  $112,720.80 in interest to pay on that loan. 

On a 15 year loan, with theoretical rate of 2.125%, you'd end up paying $280,488.60 on that original $240,000 loan. That's $40,488.60 interest to be paid. 

Barrier:

Higher Monthly Payments. 

Using the example above the difference in monthly payments would be:

30 year loan: $979.78

15 year loan: $1,558.27

Please also keep in mind that these payments do not have taxes, insurances, or other monthly home expenses. 

Benefit:

Faster Equity

With having a lower interest rate, it allows you to pay the principle off on the loan faster. This allows you to build equity in the home faster. 

Barrier:

Lower Loan Amount

Lenders may offer less loan amounts as they look through your finances with consideration to the higher monthly payments. 

Benefit:

Own your home faster

15 years after closing you will pay your final mortgage payment! Wouldn't' that be an awesome feeling? Think of everything you could do with that freed-up money!

Barrier:

More Money Tied to your Home

The extra money that you use each month on your loan is extra money that you cant use some where else. While you may decide that extra money for the payments can fit in to your budget, it leaves you less flexible when it comes to your money. 

A 15-year mortgage makes a lot of sense, only if you have the means to fit it into your monthly budget. 

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