The saying goes, "30 is the new 20!" Well, at least that was the saying in New York. I think it might be time to change those numbers to "15 is the new 30!" And no, I'm not referring to someone's age to determine if they're cool. Over the last few years, the number of people selecting15 year mortgages has been steadily increasing. This isn't just true for home refinances but for home purchases as well. In this article, I'll be outlining a few of the benefits and drawbacks of the 15 year mortgage so readers can make the best decision for themselves and their families.
One advantage of the 15 year mortgage is it can save borrowers money. Since the loan is amortized over 15 years instead of 30 years, you save a considerable amount of money in interest. Also, 15 year mortgages are considered less risky to banks since they receive their money sooner. This, in turn, allows banks to offer lower rates than 30 year mortgages, which again saves borrowers money.
Another advantage of the 15 year mortgage is you get to pay your home off faster. Having an obligation that you're bound to can be very stressful. Once you own your home, you can increase savings for retirement, take more vacations, or even pay other debts such as your children's college loans. Having the freedom to do what you want is life changing.
One drawback of 15 year mortgages is your payments are much higher. Depending on interest rates, this can lead to payments hundreds of dollars higher every month. This can place many in a tough financial position if they're not budgeting correctly. In addition to higher payments, the borrowers may be forced to forgo the opportunity to invest in other places, build up higher cash reserves or save for other incentives like 401(k) accounts.
Regardless of the advantages or disadvantages of 15 year mortgages, every borrower must tailor their decision to their specific financial position. An advantage for one person may not be an advantage for another. I always recommend finding a great Realtor you trust who can guide you through this tedious process. Tax deductions, home businesses and a person's age will tip the scales differently for all however, as long as you're making the best decision for you and your family, everyone is a winner.