3 Reasons Why I Decided on a 15 Year Mortgage

3 Reasons why I decided on a 15 year mortgage

Buying a home is one of the biggest financial decisions many of us will make in our lives. Although prices vary across the country, mortgages are pretty standard throughout.

There are a handful of different mortgage options one can choose from to finance a house purchase. The most common is a 30 year mortgage. The second most popular one is a 15 year mortgage. Although the rates for a 30 and 15 year mortgage might not seem like much of a difference, the amount of interest you pay over the life of the loan varies greatly.

Reason #1

The lower interest rate. I recently purchased a home and got a 15 year mortgage at 3.625%. That is about half a point (.5%) lower than what a 30 year mortgage rate would have been.

Many people tend to focus on what their monthly payment will be, but simple math tells you that a lower interest rate means you are spending more of your monthly payment on equity and less on interest to the bank.

Reason #2

Build equity faster. For me, thirty years seems like an eternity; however, 15 years doesn’t seem that bad. By paying a little extra money towards a payment each month, you can often times reduce that 15 year mortgage to 12 or 13 years.

I plan to pay off my 15 year mortgage faster by rounding up the amount on my monthly mortgage payment. For example, if my mortgage payment was $1236 per month, I would pay $1300 per month. The additional $64 dollars goes straight to the principal of the mortgage, thus you will build your equity faster and pay off the loan quicker.

Reason #3

To build my net worth faster. Most people go with a 30 year mortgage because it is more common and is often the only option that is pitched to them. When I bought my first house, I didn’t even think about a 15 year mortgage.

We already discussed that a 15 year mortgage allows you to build equity faster and more equity means a higher net worth. I’m sure this won’t be the last house I ever purchase, but I can assure you that I have no plans of choosing a 30 year mortgage on my next home purchase.

If you are unsure if you are able to afford a house payment with a 15 year mortgage, then create your own free budget here at budgetandinvest.com

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