Reasons to Choose a 15 Year Mortgage

There are both pros and cons to choosing a 15 year mortgage, but take a look at some of the reasons that many home-buyers opt for a shorter mortgage term as opposed to a longer 30 year loan.

You Build Equity Faster

If you decide to go with a 15 year mortgage, your monthly payments will be higher than if you chose to spread the cost of your house over a 30 year period. The upside of this is that you get to build equity at a much faster rate because a larger percentage of every payment goes directly to your principal. This means that you can borrow against your home equity at an even lower rate of interest if you need to access cash at an earlier time. More equity also means you are likely to make a larger profit on the sale of your home because you have a larger stake in the ownership of the property.

You Own Your Home Much Sooner

Another benefit of a 15 year mortgage term is that you own your home much sooner. This is an important factor to many people who spend the majority of their working life striving to get rid of mortgage debt. Instead of burdening yourself with the longest mortgage term possible and then fighting to pay it off earlier you can simply make the choice to commit to an earlier payoff date at the beginning.

You Secure Lower Interest Rates

A 15 year mortgage term usually comes with a lower rate of interest because there is less risk attached to the loan due to the shorter pay-off time. A 30 year mortgage on the other hand means that lenders need to lock you in to a sufficiently high rate to hedge the risk that interest rates will increase substantially over your fixed rate over the life of the loan. This means that under a 15 year mortgage you also pay less in interest which amounts to a lower overall cost of financing.

You Have Built-In Discipline

The 15 year mortgage is great if you lack the discipline to make extra payments on the principal over the term of the loan. Lots of people swear they will make lump sum payments or even extra monthly payments if they choose the 30 year term but because this is not mandatory it is easy to put it off and channel money into other areas. Locking into a 15 year mortgage with a higher monthly installment takes the choice out of the equation and you end up making those payments that are better for you financially in the long run.

A 15 year mortgage may not be for everyone. For starters you need to be able to qualify for it because it means more money out of pocket every month which may lower the overall principal you can borrow, which translates into a smaller house or one with less of the bells and whistles. A 15 year mortgage also means you get less of a tax credit on your mortgage interest and you have less flexibility because you need to dedicate a larger portion of your overall income to your mortgage. Despite these downsides the pros discussed above may be enough to make it an attractive option for you. Before you choose make sure to weigh the positives and the negatives carefully and then go with what is the best suited to your financial situation.