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How to Decide Between a 15-Year and 30-Year Mortgage

Illustration for article titled How to Decide Between a 15-Year and 30-Year Mortgage

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With mortgage interest rates hitting record lows again, you may be thinking about buying a home or refinancing your mortgage. But should you apply for a 15-year mortgage or a 30-year mortgage? Here’s how to decide which option is best for your family.

The benefits of a 15-year mortgage

There are a few benefits of a 15-year mortgage. The biggest perk may be scoring an even lower interest rate, because a 15-year loan is less risky for lenders. You may also build home equity faster because you will be making higher principal payments every month. If your goal is being 100% debt-free, you may achieve that goal faster with a 15-year mortgage.

The downsides of a 15-year mortgage

The biggest downside of a 15-year mortgage is the higher monthly payment. Locking your family into a higher monthly expense could be risky, particularly amid a shaky economy. If you lose your job or other expenses increase, it may be tough to afford your mortgage. It may also be harder for your family to save money and build a three- to six-month emergency fund.

Another major downside: the opportunity cost. By spending more on your mortgage every month, you’ll have less money to put toward meeting your other financial goals. With 30-year mortgage interest rates already below 3%, consider the opportunity cost of chasing that lower, 15-year rate. Should you sink more money into your home when you could potentially earn more elsewhere? You may prefer to save and invest the extra money for education or retirement.

How to decide which mortgage is right for you

Like most personal finance topics, many people have strong opinions about the decision to pay off a mortgage sooner—but the truth is, there isn’t a consensus about what is best for everyone.

If you’re debt-adverse and paying more in interest keeps you awake at night, you may prefer a 15-year loan. But if you’re someone with unsteady income or you worry about job layoffs, you may be better off opting for a 30-year mortgage. Although a 30-year mortgage is more expensive, there isn’t a “right” or “wrong” decision for your family.

Here’s one more thing to consider: Most 30-year mortgages don’t charge a pre-payment penalty, so you’ll almost always have the option to pay more than your minimum payment every month. By applying extra money to your principal, you could effectively shorten the term of your mortgage—and save on interest—while giving yourself the added flexibility of paying less if and when you need to.


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