A 15 year Mortgage can save you money
When considering a mortgage, you typically look at two factors.
- How can you qualify for the most money with the lowest payment?
- How can you get the lowest interest rate for the mortgage?
While these are two important points, there is an additional one that people forget to consider, which can result in spending more money.
The term or length of a mortgage is critical for a couple of reasons. First, it sets the length of the loan. Second, it defines the amount of interest you are going to pay over the life of the loan. These are huge issues when it comes to building equity.
The longer the loan, the more interest you are going to pay. The trade-off, of course, is you are going to have smaller monthly payments the longer you stretch out the loan. While this may sound like a good goal when you first get the mortgage, it can backfire on you in the long run.
Most people focus on interest rates to save money on mortgages. This is a valid approach but playing with the length of the loan may be a better way to save money. A shorter loan can save you hundreds or thousands of dollars over the life of the mortgage. A shorter loan comes with higher monthly payments.
Choose a Mortage that Suits Your Financial Situation
The decision on the term of the loan is relatively simple but dependent upon your personal situation. There is no one right choice. You need to determine if you can comfortably afford the higher payments that come with a shorter-term loan. In general, a 15-year mortgage will have payments of 20 to 25 percent higher than a 30-year loan. Of course, you will pay the loan off faster and build equity in the home quicker.
The modern mortgage industry has a variety of different term length products. When applying for a loan, take the time to evaluate the different terms with your mortgage broker to find a loan that is perfect for your situation.