15 vs 30 Year Mortgage

Though you can pay off your mortgage as soon as your finances allow – you inherent, receive a bonus, win the lottery (unlikely, but still a possibility, however remote) – most mortgage owners make their last payment after 15 or 30 years. 

Fixed 15-year and 30-year mortgages are structured similarly in that the payment and the interest remain the same, or fixed, over time. A portion of the loan is interest; the other component is the principal or the sum of money borrowed in a loan.  

But here the similarities end.  

30-Year: Pros and Cons

According to Freddie Mac, 90% of all homeowners choose a 30-year mortgage. 

In a nutshell, a 30-year mortgage is a longer mortgage. It is more affordable in the short term in that it carries a lower monthly payment (hooray!).  However, the interest will be higher, so you’ll end up spending more in the long run (boo!). 

With a 30-year mortgage, most of the money in your monthly payment is directed toward the interest of the loan. As the balance whittles down, so too does the interest because the principal on which the interest is based is decreasing. 

So, why do the vast majority of homeowners choose a 30-year mortgage if it will cost them more in the end? A few reasons. The lower monthly payment of a 30-year mortgage allows the homeowner to build up savings and frees up funds for other goals, like paying off student loans, bolstering your childrens’ college funds, and saving for retirement. A lower mortgage payment also means you can afford more house.

15-Year: Pros and Cons

So that leaves 10% of homeowners who opt for a 15-year mortgage. 

A 15-year mortgage is obviously shorter in duration than a 30-year. It carries a lower interest rate but a higher monthly mortgage payment. With a 15-year mortgage, you pay off the principal faster and pay less interest – a lot less – over the lifetime of the loan, potentially saving thousands of dollars long term.

It’s what financial advisers call “forced savings” because the homeowner is building equity (ownership) in the prosperity, much faster than if he or she had a 30-year mortgage. If you can swing it financially, then it’s a financially prudent choice. You own your house free and clear in half the time, and the money you save on interest can be channeled to other goals, like home updates, establishing a new business, or travel.

Still uncertain? There is no “one size fits all” with a mortgage (or in life). The professionals at Aksarben Mortgage can help you determine what approach is best for you and your financial situation. Contact them today.

* Specific loan program availability and requirements may vary. Please get in touch with your mortgage advisor for more information.