A 15 Year or a 30 Year Mortgage Rates? Which is Better?
When the real estate market was booming, everyone was looking to get in
on it and as a result there was a variety of different types of
mortgages available including interest only loans, variable lending
terms and other exotic options. There were even specialty options where
lenders did not technically verify a borrower's income. As the
subsequent real estate bubble came to an end, prices plummeted and
thousands of foreclosures began to flood the market. In the wake of the
real estate crash, lenders have naturally become more wary and mortgage
types and terms have returned to the basics where a 15 or 30 year
mortgage rates is standard. There are still other options available if you ask
for them but most lenders today prefer to remain with a basic fixed rate
15 year or 30 year mortgage rather than offering anything even remotely
exotic. In looking at which option might be best for you, it is
important to consider both the advantages and disadvantages of both
mortgage options
One general rule of thumb to keep in mind is that a shorter mortgage
term will provide you with lower interest overall, but in exchange you
will pay higher monthly mortgage payments. With this guideline, if you
opt for a 15 year mortgage you will ultimately pay more per month on
your mortgage but you will also pay off your loan sooner and pay less
interest overall than compared to a 30 year mortgage which will provide
you with lower monthly mortgage payments but longer terms and more
overall interest over the life of your mortgage loan.
One important question to ask yourself is how much interest you will pay
on your mortgage. This can sometimes be difficult to determine just from
your monthly mortgage payment due to the fact that mortgages are
amortized and as the principal is paid down the amount of interest that
you pay is lowered. To determine this, take the total amount you plan to
borrow and the interest rate and then use a mortgage calculator to
determine what the total interest will be on your loan. Such mortgage
calculators will typically provide you with the total monthly mortgage
payment with the exception of homeowner's insurance and property tax
payments. Keep in mind that prior to signing a loan, lender's are
required by law to provide you with a Truth in Lending Act statement
that will display the total amount of money that you will pay over the
life of the loan. While the total numbers may be shocking, they will
give you a very real idea of what you can expect to pay.
In looking at the final numbers for both a 15 year and a 30 year
mortgage loan, the 15 year mortgage option is the best option when you
consider the fact that you can typically save thousands of dollars in
interest payments over the course of the loan. Of course, you must also
consider the difference in the monthly mortgage payments, which can be
significant based on the amount of money borrowed. Depending on your
financial situation, it could be that a 15 year mortgage would make the
home you would like to purchase simply unaffordable if you are not able
to swing the relevant monthly mortgage payments. This is often the usual
situation when a 30 year mortgage might actually make more sense than a
15 year mortgage. The difference in the mortgage payments between a 15
year loan and a 30 year loan can also prove to be a hardship if you
should experience a job loss or any major expenses in the future. While
no one certainly ever expects to find themselves in a position of
financial hardship, it can happen and in order to protect yourself it is
never a good idea to max out all of your disposable income on a mortgage
payment. The lower monthly payments that are associated with a 30 year
mortgage will allow you to have an increase cash flow that will make it
possible to meet other financial goals such as saving for college or
retirement or paying down other debts.
The basic key to remember is that while you can always make an
additional payment on your mortgage each month, if you opt for a 15 year
mortgage you cannot always pay less on your mortgage. Ultimately, a 30
year mortgage provides you with far more flexibility than is available
through a 15 year mortgage.
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