A little over five years ago I made a financial mistake that I’m not proud of. I purchased my first home. No the purchasing of the home isn’t the financial mistake, the mistake was going with a 30 year mortgage instead of a 15 year one. Many times throughout the year I often wonder why I didn’t even consider a 15 year mortgage. Don’t make the same mistake. If you have the financial ability to do a 15 year mortgage then by all means go for it. I will discuss a few of the 15 year mortgage pros and why I wish I could go back in time and do it all over again.
15 Year Mortgage Pros #1
The easiest difference to distinguish between a 15 year and a 30 year mortgage is the interest rate. 15 year mortgages have a significantly lower rate than their counterparts. The shorter the amount of months a company has to lend you money, the more likely they are to recoop their costs. A 15 year mortgage tends to have an interest rate of 0.5% to 0.75% lower than that of a 30 year. Although that might not seem like a significant number, it will ultimately equal many thousands of dollars in savings over the life of the loan.
15 Year Mortgage Pros #2
Simply put, you build equity faster. Because you are having to pay the full amount of the loan in half the time, your monthly payment will be more; however, that also means you will become the full owner of your home in a shorter period of time. Many people, myself included, choose a 30 year mortgage because the payments are less on a monthly basis. Had I chosen a 15 year mortgage, my payment wouldn’t have been much more a month and I’d own the home outright in half the time.
15 Year Mortgage Pros #3
The final pro is that you have the opportunity to eliminate your largest monthly expense. This is especially important as one approaches retirement. People sometimes talk themselves out of a shorter mortgage because the higher monthly payments mean they have to forgo savings for other things such as retirement. Can you imagine owning a house free and clear in retirement and not having the stress or monthly expense of a mortgage payment? Plus you can also free up more capital if you decide one day to do a reverse mortgage.
The majority of housing loans issued are in the form of 30 year mortgages. This has been the case for a while. I messed up when I bought my first home, but I can assure you I won’t make the same mistake for my next. A 15 year mortgage is ideal for individuals or couples who have stable jobs, and are good at budgeting their monthly expenses. The opportunity to save money on paid interest and build equity fast will be too much for me to pass up again. That is why the 15 year mortgage pros strongly outweigh any cons.
Budget Smart, Invest Wise
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