Should You Go For a 30 Year Or 15 Year Mortgage Term

Once you have decided on the kind of mortgage you want such as fixed rate, adjustable rate or a hybrid loan, the next decision that you are likely to face these the duration of the loan. Should you choose a 30 year mortgage with a lower payment or a 15 year mortgage that will allow you to pay off your mortgage quicker.

The main advantage of a 30 year mortgage is that the monthly payments are going to be less. This may even allow you to qualify for a larger sum of money as your monthly payment means that you have your debt to income ratio.

However, you will have to take your monthly payments with a pinch of salt because over the entire term of the mortgage you will pay double the money as interest as compared to a 15 year mortgage. A 30 year mortgage will allow you to have more free cash on you if that is an important criteria.

So while you may pay more money as interest over the long run, you will be able to fulfills your other financial goals at the same time such as saving for retirement, vacation, children’s education sector. A mortgage loan payment should always be enough so that you don’t feel financially stable. A fixed-rate 30 year mortgage can typically have a payment that is 25% lower than a comparable 15 year mortgage.

Saving mortgage on a monthly basis will also allow you to make more productive use for it money on our 30 years. This productive use includes putting money away for retirement which will not only accrue interest on a compounded basis but is also tax deductible and tax deferred for future. You can make contributions that add to your employer-based 401K as well as self-employed SEP–IRA or Keogh’s. Everyone with employment income can contribute to an individual retirement account, IRA although these contributions may not immediately be tax-deductible if you or your spouse’s employer offers a retirement account or pension plan.

As long as there are no pre-payment penalty on a 30 year mortgage, you can make extra payments and finished paying off your mortgage much sooner. Just making one extra payment annually can reduce the term of the mortgage by as much as 7 years. Any more payments made towards the principal amount can allow you to pay off the mortgage in 15 years without having had to be constrained with higher monthly payment of a 15 year mortgage. However, this will require discipline and savings on your part.

A 15 year mortgage is a good idea if you have enough money to meet the monthly mortgage payment and you are reasonably sure that you will not be financially constrained in any way. If you can afford a 15 year mortgage and you can save a lot of money in interest. However, for most of the people 30 year mortgage tends to make more sense.

You should always endeavor to pay off your mortgage as quickly as possible. Even with the 30 year mortgage always ensure that there is no prepayment penalty. This way you can make extra payment towards the principal amount and pay off the mortgage loan quicker.

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