When it comes to buying a house, choosing between the more common 30-year or the 15-year mortgage seems like an easy choice. With a 30-year mortgage, you get lower monthly payments spread over a longer period of time. Is this the right choice though?
Why Is a 15-Year Mortgage Better?
1- Lower Interest Rates
The interest rates you should pay on a mortgage are calculated based on your ability to pay the money loaned and the possibility of inflation. Whenever there is a higher risk of default or increased chances of a high inflation rate, the lender will try and balance the risk by charging you more by raising the interest rate.1
2- Minimal Risks of Defaulting
The possibility of you defaulting is higher in a 30-year period than a 15-year period. The inflation rate change over this period is also bound to be higher than a 15-year period as the inflation rate of a healthy economy rises annually.
This makes the interest rate of a 15-year mortgage lower than a 30-year mortgage, all factors remaining constant.
The difference between the interest rates between the two mortgages are usually not as high, but given the longevity of the 30-year mortgage, the amount of interest paid overall can be a lot.
3 – Faster Payment Benefits
Taking a 15-year mortgage over a 30-year mortgage will get you 15 mortgage-free years. Even though this means that you get to pay higher amounts initially, the relief of not having debt and freeing up money can have a great effect on your finances.
A faster payment plan may also be helpful when you are not planning on living in the house for more than 30 years. If you plan on selling the house within 30 years, you will have more equity in the house, giving you a bigger say and a bigger return from the sale.
If you’re not sure on how to maximize savings on your home mortgage, talk to a CalPATH Home Loan Program advisor who will give you invaluable tips
Why should you take 15-year mortgage rates over a 30-year mortgage?
If you can get the extra cash to finance a 15-year mortgage as opposed to a 30-year one, then this would certainly be the best choice for you. You will pay lower interest rates that will add up to significantly lower amounts.
Think about a 15-year mortgage loan as a forced savings account. Yes, you will pay an additional $1,000 each month on a $400,000 loan, but at the end of 15 years, you will own your home (Free & Clear). With an average annual appreciation of 5% per year in California, you will have attained over $1,000,000 equity in your home! Great start for your retirement!
With interest rates at an all-time low, there will never be a better time to trade in your 30-year mortgage for a 15-year loan!
“About Mountain West Financial and the CalPATH Home Loan Program
Mountain West Financial is the exclusive lender offering CalPATH, the #1 home loan program for Teachers, Police Officers, Firefighters, and other public employees who serve our local California communities.
You may contact our CalPATH Hotline @ 800-310-7577, seven days a week from (8:30 am to 8:00 pm). A CalPATH advisor will be standing by to answer (any & all) questions you may have about the home buying or refinance process.
We look forward to working with you soon!
Joe Moore – Branch Manager“
Links to sources used
- How would an interest rate rise of 0.25% affect me? – https://www.bbc.com/news/business-33568469