Every person who gets a mortgage acquires a unique one. Each is different by type, size, duration, and payment amount, and one question you might have is whether you should choose a 15 or 30-year loan. Both options work well in some situations, but here are some details to consider before choosing one when getting a home mortgage.
Compare the Interest Rates
One thing you might notice when comparing these options is the difference between the interest rates. Shorter loans generally have lower rates, while longer loans might have higher rates. While the rates might not be significantly different, even small differences affect the loans. A small difference in the interest rates can affect the payment amounts and the total interest you pay for the loan. If you want to save money through a lower rate, you might benefit from choosing a 15-year home mortgage.
The Payment Differences
The second significant thing to compare is the payments for each loan type. Imagine if you want to borrow $350,000 to buy a house. Now, imagine paying it off in 15 years versus 30. Understandably, it requires larger payments to pay the loan off in only 15 years. Therefore, you can expect to have higher mortgage payments with a 15-year loan. When you spread the payments over 30 years, you have twice as much time to repay the same amount. Therefore, you will have lower payments with a 30-year loan. You might want to consider these differences as you select a mortgage.
The Total Interest You Pay
Next, you might want to look at the total interest you will pay over the course of the loan. If you compare the interest of a 15-year loan to a 30-year loan, you will find that you will pay a lot more in interest with a 30-year loan.
One thing you can do, though, is to choose a 30-year loan and pay extra each month. If you pay extra money every month on your loan, you will pay down the principal balance faster. As a result, you will pay less money in interest. As a result, you can repay a 30-year loan faster if you make extra payments on the loan.
If you have questions about home mortgages, contact a lender today to find out if you qualify. A lender or financing service can provide additional information regarding this part of the home mortgage process.
Share19 May 2021
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