What are the Pros and Cons of a 30-year Mortgage?
Many individuals prefer a 30-year fixed-rate mortgage, as it provides them with a generous span of thirty years to fully repay their home loan. Alternatively, you have the option to consider a shorter loan term, like a 15-year mortgage. Opting for this shorter duration will allow you to clear your debt in half the time and potentially save a significant amount of money in interest payments. However, it's important to note that your monthly payments will substantially increase if you choose this route.
Interest rates for 15-year vs. 30-year mortgages
Monthly mortgage payments for 15-year vs. 30-year loans
30-year mortgage pros and cons
Pros of a 30-Year Mortgage:
Cons of a 30-Year Mortgage:
15-year mortgage pros and cons
Pros of a 15-Year Mortgage:
Cons of a 15-Year Mortgage:
Which loan term should you choose?
Determining the ideal loan term for your mortgage depends on various factors, including your monthly budget, age, income, savings, and financial objectives.
According to Jake Maier, a senior mortgage banker at American Bank of Missouri, individuals who are well-suited for a 15-year mortgage are those who can comfortably manage the higher monthly payments, desire to pay off their home sooner, aim to build equity more rapidly, and possess the necessary cash flow to support homeownership costs.
In addition, John Li, co-founder and CTO of Fig Loans, suggests that older adults nearing retirement may prefer a 15-year mortgage and make aggressive payments to ensure their home is fully or mostly paid off by the time they retire.
However, Johnson advises caution when opting for a 15-year mortgage, particularly if it hinders funding other essential life goals such as retirement accounts or children's education funds. In such cases, a 30-year mortgage is often the better choice.
For younger adults with longer working lives ahead, especially those in the early stages of their careers with entry-level salaries, Li recommends considering a 30-year mortgage. It's important to note that you can always start with a 30-year mortgage and later decide to refinance to a 15-year term or make extra principal payments, as long as there are no prepayment penalties on your loan (which is typically the case).
By adhering to a disciplined and aggressive accelerated payment schedule, it is possible to pay off a 30-year loan in 15 years or even less, if desired.
In summary, it is beneficial to explore both 15-year and 30-year mortgage options. Whether you are a first-time homebuyer or refinancing your existing home, each loan type has its advantages and disadvantages.