While a 30-year mortgage is fairly typical among home buyers, it is not the only option available when choosing a mortgage. There are many factors to consider when deciding how to finance your new home, and the choice you make will be dependent on your specific situation. So we’ll give you some of the pros and cons of both a 15-year and 30-year mortgage to help you decide which option is best for you.
Mortgage payments can account for a large portion of a family’s budget, so wouldn’t it be nice to pay off your mortgage and free up some extra cash every month? One major benefit of a 15-year mortgage is that it allows you to pay off your mortgage sooner. If you plan on staying in the home for awhile, you could pay off your home and start putting that money toward other things, like your vacation fund! Additionally, you are able to build equity faster than you would with a 30-year mortgage. You also will spend less on interest, which can add up quickly after years of paying off a loan.
Of course, there are downsides to 15-year mortgages as well. The most obvious drawback is that you will have a higher monthly payment than you would with a 30-year loan. If you can’t afford the higher monthly payments, this may not be the loan for you. You also must be able to make these payments for the next 15-years, so that is something to consider too. Higher payments may take away from your ability to reach other goals, such as saving for retirement or your kids’ education, so you have to weigh the costs and benefits.
If you are thinking about a 30-year mortgage, there are advantages associated with this type of loan as well. Monthly payments will be lower, which means you can put more money into savings, retirement, paying off other debt, or whatever else you want. Plus, you have the option to pay more on your mortgage each month if you decide to pay it off sooner. Another plus is that while you will pay more in interest, that interest is a tax write-off, so that may benefit you after all.
The downside of a 30-year loan is that it potentially will take you twice as long to pay off your home as a 15-year loan would take. Furthermore, you will be paying more for the home overall, since you have to factor in interest for those 15 additional years you are repaying your loan.
Determining what kind of home loan is right for you is a huge decision. We know that each buyer’s circumstances are unique, and we’re hear to help you weigh the costs and benefits of your options. So if you live in the Potomac, North Potomac, Bethesda, Rockville, Kensington, Silver Spring, Gaithersburg, or Washington, DC area, and you are buying a home, contact the Fitzpatrick Group for help!