A 15-year mortgage has some advantages compared to a 30-year mortgage, such as lower total interest paid, a lower interest rate, lower fees, and forced savings. However, it also has some disadvantages, such as higher monthly payments, lower affordability, and less money earmarked for savings. The decision between a 30-year or 15-year mortgage will affect your finances for decades to come, so be sure to analyze the numbers before deciding which is the best option. If your goal is to pay off your mortgage sooner and be able to pay higher monthly payments, a 15-year loan could be a best option.
The lower monthly payment on a 30-year loan, on the other hand, may allow you to buy more home or free up funds for other financial goals. A 30-year mortgage may have more permissive income requirements compared to a 15-year term. The extended repayment period results in lower monthly payments, making it easier for borrowers to meet creditors' debt-to-income criteria. Consequently, this can improve accessibility to homeownership for people with different income levels.
A 30-year mortgage could allow you to pay for more physical property than a 15-year mortgage. If you need a larger mortgage to buy a larger home, if it takes 30 years to pay it off, you'll be free to make this purchase. This may not be possible if you only had 15 years to pay off the loan. The calculation of the back of the envelope is how much (or if) the return on foreign investment, minus the capital gains tax due, exceeds the mortgage interest rate after accounting for the deduction of mortgage interest.
If you have a solid idea of these factors, you can evaluate whether it's more feasible for you to continue making mortgage payments as scheduled or to cancel the mortgage and invest the funds. Refinancing to change the term of the mortgage can affect your finances, whether you're thinking of reducing the duration of the loan from 30 to 15 years or extending it in the opposite direction. When it comes to mortgage conditions, 15-year mortgages are perfect for those with the income needed to make higher monthly payments. While the 30-year mortgage is the most popular, a 15-year mortgage offers some key advantages if you can allow it.
While a 30-year mortgage can make your monthly payments more affordable, a 15-year mortgage generally costs less in the long run. If you already have a 30-year fixed-rate mortgage and are interested in refinancing a 15-year mortgage, there are a couple of key points to consider. With a 15-year mortgage, you'll be free of mortgage debt in half the time as with a traditional 30-year mortgage. If you don't have access to a specialized 15-year versus 30-year mortgage calculator, don't worry.
It's easy to use a regular mortgage calculator to compare the payments you can expect on these two types of loans. If you have a larger amount of money that you would like to apply to your mortgage and you want to lower your monthly payment, consider reformulating the mortgage. But just because you're not ready to commit to a 15-year mortgage doesn't mean you can't enjoy the benefits of paying your mortgage early.