Are you in the process of buying a home but are not sure if you should get a 30 or 15-year mortgage? If so, it will help to know the following things to help make a more informed decision. You may discover that there are some benefits to a 30-year mortgage that you may not have known about.
30-Year Mortgages Have A Lower Monthly Payment
If you are looking to have the absolute lowest monthly payment for your mortgage, then a 30-year mortgage is going to be the way to go. This is because the payments are spread out over 360 months, and the payments will naturally be lower as a result. However, a 30-year mortgage allows the interest to compound over a longer period of time. This will result in paying more money in interest than you would in a 15-year time period.
30-Year Mortgages Can Be Paid Off Early
Always check with your mortgage lender when getting a 30-year mortgage to see if there any penalties for making additional payments towards your mortgage. In most cases there is not a fee to make those additional payments, meaning that you can pay off your mortgage earlier than 30 years. As long as those additional payments go toward the principal and not the interest, you'll also be saving a significant amount of interest as well over the court of the mortgage.
30-Year Mortgages Can Be Recast
One of the advantages of making additional payments is that it allows you to recast your mortgage if necessary down the road. While making additional payments normally shaves years off the back end of your mortgage, your monthly payment will remain the same. However, recasting your mortgage means that the mortgage will be brought back to its original 30-year term, but your monthly payment will be much lower in the end. You'll end up paying the same amount of interest when the mortgage is finished as if you never made those additional payments, but it gives you a way to lower your monthly payment in the future if necessary.
30-Year Mortgage Can Get You A Bigger Home
The home that you buy will be determined by your debt-to-income ratio, which is created by comparing your monthly expenses to how much you make. If the ratio exceeds 43%, then you won't be able to get a mortgage. Since a 30-year mortgage has a lower monthly payment, you'll be able to get a bigger home and stay under that 43% Debt-to-income ratio. This may not be possible with a 15-year mortgage.
Talk to a home loan broker for more information.Share