The majority of mortgages in the U.S. are 30-year mortgages. When you approach a mortgage lender to apply for a loan, they often assume you want a 30-year mortgage, unless you say otherwise. While a 30-year mortgage has the benefit of coming with lower monthly payments than a mortgage over a shorter term, there are times when it is not, in fact, the best choice. Here are three reasons to consider a 15 or 20-year mortgage instead.
You'll pay less overall.
Over the life of the loan, you will pay less for a 15 or 20-year mortgage than for a 30-year mortgage. How much you'll save exactly will depend on the rates the bank offers you on each type of loan. However, 15 and 20-year mortgages often come with lower interest rates than 30-year mortgages. Plus, you are making fewer payments overall. It's not unheard of for someone to save 20,0000 or 30,000 in interest, over the life of their mortgage loan, and if you're buying a more expensive home, you may save even more. Imagine if you invested that money in the stock market, instead; you could have some substantial savings set aside, by the time you're done paying off a 15-year mortgage.
You'll build equity faster.
There are a few reasons why it is good to have equity in your home. First, if you run into financial trouble, such as if you lose a job or have a huge medical expense, you can take a loan out against the equity. A home equity loan usually comes at a lower interest rate and is easier to get than a personal loan. Second, if you decide to sell the home, having equity means you'll actually get money from the sale. With a shorter-term mortgage, you build equity a lot faster, since you're paying less towards interest each month. This makes a 15-year mortgage a good choice for anyone who is considering selling a home within a few years.
You won't tie up your monthly income later on.
Where will your life be in 15 years? What about in 30 years? If you're already in your 30s, there is a good chance you will be retired in 30 years. You won't want your monthly income tied up in a mortgage at that point. If you pay off your home in 15 years, you will have more flexibility as to how to spend your income in retirement.