15-year vs. 30-Year Mortgage: Which Is Right for You?

If you’re buying a home, you’re likely acquiring not only a beautiful new house, but also a big fat loan to go with it. Mortgages are the biggest liability on most homeowners’ balance sheets, and if you’re not careful, this liability could become a burden that interferes with other important financial goals.

Picking mortgage terms that make sense for you is essential to avoiding financial disaster. You’ll generally want to look for a fixed-rate mortgage with the best rate you can find, an affordable monthly payment, and a reasonable repayment period.

The big question is: What exactly is a reasonable repayment period? Many homeowners take 30-year loans, but you shouldn’t assume that’s the best choice for you. There’s also a 15-year loan option to consider. Both a 15-year mortgage and a 30-year mortgage have pros and cons, so check out these tips to help you decide which one you should choose.

Payoff time

It may seem obvious, but the biggest benefit of a 15-year mortgage is that you’ll pay the loan off sooner. Being mortgage-free will give you peace of mind and a lot more flexibility to accomplish other financial goals — and a 15-year mortgage gets you there in half the time.

Paying your mortgage off in just 15 years means you’re much more likely to be done with repayments before you have to start sending tuition checks to your kids’ colleges — and before you retire and start living on a fixed income.

Unfortunately, because people are buying houses later, it’s becoming more common for Americans to carry mortgages into retirement. Close to half of baby boomers are still paying off mortgages, and they owe a median amount of $90,000. This is unfortunate because a big mortgage bill can seriously put a crimp on your plans to travel or kick back with the grandkids in your golden years.

If you want to enjoy life with no house payment while your fellow retirees are still sending in their monthly mortgage checks, then a 15-year mortgage may be a better bet.

Total costs of a 15-year vs. 30-year mortgage

A 15-year mortgage is going to be a lot cheaper in the long-run. Reduced costs and lower risk for lenders means rates for a 15-year loan are substantially lower than rates for a 30-year mortgage. Plus, since you’re paying off the loan in half the time, you won’t pay interest for as long.

Source: 15-year vs. 30-Year Mortgage: Which Is Right for You? — The Motley Fool