When most people are buying a house, they get the same loan; a 30-year, fixed-rate mortgage. They think it’s normal to sign a loan that’s going to last three decades.
But doesn’t that freak you out just a little bit? That’s a long time to owe someone money.
Not everyone needs to lock themselves into a 30-year mortgage. Other options are available that can help you pay off your home faster, and save lots of money in the process.
The 15 year mortgage is likely a better option for many people. If you can afford to make the higher monthly payments, that you can reap tons of benefits from 15 year mortgages.
What are the benefits you can expect from a shorter mortgage loan? Read our 15 year mortgage guide below to find out now.
Own Your Home Faster
With a 30-year mortgage, it’s going to take three decades of hard work, making mortgages payments, and paying interest before you own a home free and clear. Sure, it will feel really good once you get there, but that’s a long time to wait.
A 15 year mortgage cuts that time in half. 15 years isn’t that long, and you’ll get to spend a much larger portion of your life owning your home, and not having to make mortgage payments.
What would you do if you didn’t have to make mortgage payments? Retire early? Work less? Travel, fish, or start a dream business?
Everyone’s goal should be to pay off their home, so they actually own it. A 15-year mortgage makes this process fast, easy, and dependable.
Increase Equity Faster
Of course, owning the home free and clear is the goal – but along the way, you’ll increase your equity in the property very fast. It’s kind of like forcing yourself to save money each month. You’ll have to continue making your higher mortgage payments, so you might not have lots of money left over to eat out every day, or to buy tons of stuff on the internet when you’re bored.
Equity provides peace of mind. It’s money that you own and control. And if needed, it’s money you can access by refinancing, or by getting a home equity loan or line of credit in case an opportunity or emergency comes up.
Having lots of equity in the house means you are much less likely to lose it in the event of a market crash.
Save Your Hard-Earned Money
One of the biggest benefits of a shorter mortgage program is that you’ll save money. A lot of money.
Because lenders have less risk, 15 year mortgage rates are usually lower than those on 30-year mortgages. But that’s not the only savings.
Paying interest on your home for only 15 years, as opposed to 30, can save you tens of thousands of dollars in interest.
For example, say you buy a $300,000 home and put 10% down. A 30-year fixed-rate mortgage might have a 3.75% rate. 15 year fixed mortgage rates might be 3.25%.
Over the course of 30 years, you’ll end up paying $180,000 in interest. That’s more than half of your total mortgage cost. But on the 15-year loan, you’ll only pay $71,000 in interest.
That’s $109,000 of savings by choosing a higher monthly payment now, to keep more of your money long-term. I would definitely prefer to keep $100K in my pocket instead of giving it to a bank.
More Money When You Sell
Most people who choose a 15-year mortgage are thinking of staying in the home forever. That way, they can own the home quickly, remove a high line item from their monthly budget, and enjoy life with much more disposable income.
However, even if you don’t plan on keeping the house forever, a 15-year mortgage can make selling the home a much sweeter process. With more equity in the property after just a few years, you’ll enjoy much money from the sale of your home, with which you can buy a nicer house, or move to a better area.
So a 15-year mortgage now can set you up for better opportunities later on.
The 15 Year Mortgage Isn’t for Everyone
Your bank will never convince you to get a 15-year mortgage. They make way too much money on 30-year mortgages and are happy to promote those as much as possible.
Very few people actually choose a 15-year mortgage over a 30-year mortgage these days, thanks to everyone’s lack of ability to save money in the 21st century.
And that’s okay, as 15-year mortgages aren’t for everyone. The higher monthly payment will be nearly twice as much as a payment on a 30-year mortgage. You’ll need a solid, healthy, reliable income source.
You’ll also need to limit other expenses, and may need to cut things out of your budget to make a 15-year mortgage possible. For most people, they’d prefer to have extra money now, as opposed to saving lots of money in the future.
For most people, choosing a 15-year mortgage will also limit the house they can buy. The higher monthly payment may limit how much mortgage you can qualify for, limiting the type of house you can buy.
15 Year Mortgage Tips
When deciding which mortgage to get, consider your long-term goals. Do you plan on buying one home, and staying in it forever, or at least the next 15 years?
If so, you can save lots of money by choosing a 15-year mortgage.
Then, look at your finances. Do you have enough money left over in your budget each month to handle the higher monthly payment? If not, consider what you need to remove from your budget in order to make it happen.
Is the radical level of savings, and shorter timeframe of owning a home worth cutting out those expenses? Or would you prefer to have that disposable income now?
Don’t let your banker decide which program is right for you. You need to answer the tough questions for yourself, to get a mortgage that you are happy with.
Money Now or More Money Later?
The benefits of a 15 year mortgage are clear; own your home faster and save tens of thousands of dollars in interest.
Still, it’s a hard sell for most people, as it’s very difficult in our modern society to understand the concept of delayed gratification. But if you can manage your finances well and make it work, you’ll be one of the few who reap the massive rewards.
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