Uncover how much house you can afford with Homes & Loans and avoid your home becoming a burden instead of a blessing.
The spring home buying season is about to take off and it is important to be prepared knowing what you can afford and what kind of mortgage best suits you. There is a debate between taking on a 15-year or 30-year term but it all comes down to what is financially feasible for you!
Affordability, stability and flexibility are the three reasons homebuyers overwhelmingly choose a 30-year term. The payments are lower, it is easier to qualify for, and they can always make additional principal contributions.
However, for those who can afford a higher payment and commit to the 15-year term, there are three main reasons to pursue that option:
A lower mortgage interest rate
Build equity faster
Retire the debt sooner
The 30-year fixed-rate mortgage is the loan of choice for first-time buyers who are more likely to use a minimum down payment and are concerned with having affordable payments. For a more experienced buyer who doesn't mind and can qualify for making larger payments, there are some big advantages.
Consider a $200,000 mortgage at 30 year and 15-year terms with recent mortgage rates at 4.2% and 3.31% respectively. The property taxes and insurance would be the same on either loan. The payment is $433.15 less on the 30-year term but the interest being charged is higher. The total interest paid by the borrower if each of the loans was retired would be almost three times more for the 30-year term.
For the vast majority of 15-year terms the interest rate is a lower, but that comes with a higher principal and interest payment due to it being a shorter term. While you save considerably on interest in the long run, the option only works for those who are able to make the principle payments.
Some people might suggest getting a 30-year loan and then making the payments as if they were on a 15-year loan. That would certainly accelerate amortization and save interest. The real challenge is the discipline to make the payments on a consistent basis if you don't have to. Many experts cite that one of the benefits of homeownership is a forced savings that occurs due to the amortization that is not necessarily done by renters.
Use this 30-year vs. 15-year financial calculator to compare mortgages in your price range. You can also check current rates at FreddieMac.com. As a certified lender I am able to help compare mortgages in your price range and discuss what options work best for you. We can get your prequalified or set up with a mortgage today!
Check out Beyond The Bank if you have a poor credit score, have had recent credit events or have been turned down for a mortgage.