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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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