The simple difference between a 15 year or 30 year mortgage is that the 15 year loan payments are calculated to be paid off after 15 years instead of 30. What that simply means is that you have to pay more each month with a fifteen year mortgage than you will with a thirty year loan.
By the same idea, you will create equity in your home a lot faster with the shorter term mortgage, but of course you have to pay a higher monthly payment to do so. Each time you pay off the 15 year mortgage, you can get a new mortgage since the equity remains in the home.
This is a personal choice, since some people prefer to have lower monthly payments, while some like to build equity faster. If it is not a question of affordability; is the 15 year loan automatically a better idea, or could you do something different with the money? Of course, you can always make additional payments on the mortgage to lower the term. Even though this will not be as fast as a straight 15 year loan, you will reduce your loan principle more quickly. In this case, choosing the 30 year option even if you can afford the higher mortgage payment of the 15 year option gives you the flexibility of keeping payments low when you need to and paying the whole thing when desired, to build equity.
If you can pay the higher mortgage, however, you may think other investments are a better option. If you were given the choice of a $100,000 home loan at 7% for 30 years or 6.75% for 15 years (the longer term is always at a higher rate since the bank is taking more of a chance on rates getting higher) you would have a choice of paying $665 or $885, respectively. How would you use the savings of $220? You can accumulate equity with the shorter term mortgage, however. If you think you can do better putting this money in the stock market, or another investment such as a child's college fund, you may build wealth as well. Everyone's requirements are different.
The bottom line is that the 30 year home loan proves to be much more flexible than the 15 year term. If you can to put the $220 away in a stock market plan or an education plan, this might be the wisest choice right now. However, if you have little discipline, and the savings will just be wasted, you should take the 15 year loan and concentrate on building wealth. - 29970
By the same idea, you will create equity in your home a lot faster with the shorter term mortgage, but of course you have to pay a higher monthly payment to do so. Each time you pay off the 15 year mortgage, you can get a new mortgage since the equity remains in the home.
This is a personal choice, since some people prefer to have lower monthly payments, while some like to build equity faster. If it is not a question of affordability; is the 15 year loan automatically a better idea, or could you do something different with the money? Of course, you can always make additional payments on the mortgage to lower the term. Even though this will not be as fast as a straight 15 year loan, you will reduce your loan principle more quickly. In this case, choosing the 30 year option even if you can afford the higher mortgage payment of the 15 year option gives you the flexibility of keeping payments low when you need to and paying the whole thing when desired, to build equity.
If you can pay the higher mortgage, however, you may think other investments are a better option. If you were given the choice of a $100,000 home loan at 7% for 30 years or 6.75% for 15 years (the longer term is always at a higher rate since the bank is taking more of a chance on rates getting higher) you would have a choice of paying $665 or $885, respectively. How would you use the savings of $220? You can accumulate equity with the shorter term mortgage, however. If you think you can do better putting this money in the stock market, or another investment such as a child's college fund, you may build wealth as well. Everyone's requirements are different.
The bottom line is that the 30 year home loan proves to be much more flexible than the 15 year term. If you can to put the $220 away in a stock market plan or an education plan, this might be the wisest choice right now. However, if you have little discipline, and the savings will just be wasted, you should take the 15 year loan and concentrate on building wealth. - 29970
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