Buying a home is a major step. You should feel confident in how you choose to finance this important purchase.
While there are many mortgage loan types available for borrowers, the term length options usually boil down to two main choices: a 15-year or 30-year mortgage.
Some lenders, such as River City Mortgage, also offer terms ranging from 10-30 year as well, but let’s focus on the two most common term length options homebuyers have to choose from.
We’ll explain the differences and pros and cons of 15-year and 30-year mortgages, and how you can choose the right term length for you.
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Know your mortgage loan options
The three most common loan programs lenders offer to borrowers include conventional loans, Federal Housing Administration (FHA) loans, and VA loans.
Conventional loans are the most popular type, with FHA being a prime option for those who need more flexible requirements when it comes to credit scores or down payment amounts. VA loans, then, are for veterans, active members of the military, or surviving spouses.
While each loan program varies in its requirements, they all allow you to choose whether you want a 15-year or 30-year mortgage term length with a fixed rate.
What are term lengths and fixed rates?
Term lengths denote how long you will be paying your loan back. While 30-year mortgages give borrowers 30 years to pay back their loan, this often isn’t the actual lifespan of the loan.
Before the 30 years are up, a borrower might choose to refinance into a new mortgage to get a new interest rate, or purchase a new home and pay off their mortgage. Regardless, the 30-year term is the most popular choice. We will explain more on why later.
Fixed rates, on the other hand, are mortgage loans that have fixed interest rates for the entire length of the loan. You can confidently expect to pay the same amount each month with a fixed-rate mortgage.
Pros and cons to 15-year and 30-year loans
Choosing a 15-year or 30-year mortgage is a highly personal decision, based on your unique homeowner goals and financial situation.
Let’s take a look at the differences and benefits of each type of term length.
With a 30-year mortgage, borrowers generally will pay a lower monthly payment for the maximum amount of time.
What you pay in interest over time will be more than double what you would pay if you had a shorter term length, but borrowers have more flexibility with how they pay vs. how much they can save or put toward other bills or expenses.
Since you will be paying much less per month with a 30-year loan than with a 15-year loan, you have the opportunity to add more to your savings each month, pay down debt, or make home repairs.
If at certain times you can afford to pay more, you can do so, and if money gets tight, you can simply pay your monthly payment amount.
Borrowers who choose a 15-year mortgage term length will pay more each month, but for half the amount of time. This also means you would pay less than half as much in interest as you would with a 30-year loan.
Homeowners with the funds and determination to pay off their mortgage in half the time may be interested in a 15-year mortgage.
These borrowers often have no high-interest debt and have a healthy amount of savings.
You’ll also want to consider how long you plan to stay in the home and whether you will purchase a new home at any point. The purchase of a new home could involve paying off your current mortgage when you sell this house. Or if you paid your mortgage off before selling your home, you’ll have home equity to use toward the cost of your new home or other expenses.
How to choose the right loan for you
As you can see, there’s much more to it than just deciding how long you want to be paying your mortgage. You have to look into the future a bit to consider your budget and long-term goals.
Ask yourself these types of questions to get an idea of where you picture yourself during the next several years:
- Do you plan to stay at your job or in your city?
- Do you have any strong savings goals or retirement plans?
- What types of major purchases are you planning to make now or in the future?
Think a 30-year mortgage may be for you?
If you are trying to pay down your debt, start a college fund for yourself or your children, or plan to make major updates to your home, you may decide a 30-year loan offers you the lower payments and flexibility you need.
You also may be eligible for a tax deduction from your interest payments in the early years of your mortgage, since most of your payments will be toward the interest.
When a 15-year mortgage is a solid option
If you have a healthy monthly income, low debt, plan to stay at your job or in your career path for the foreseeable future, and have adequate savings and retirement savings, you may decide to forge ahead with a 15-year mortgage.
Connect with a mortgage loan officer to discover your options
You won’t be able to make a proper decision on your loan term length without first consulting with a reputable, licensed mortgage loan officer.
The experienced professionals at River City Mortgage are eager to build a relationship with you and hear about your specific goals. Your loan officer will evaluate all of your financial information to determine which loan options would work best for you.To begin the process, get a rate quote or call us to learn more.