First-time buyers’ loans come in different forms. In addition to varying interest rates and qualification requirements, they may also have different time lengths for repaying the loan in full. If this is your first time buying a home, you may be wondering whether you should pursue a 15-year or a 30-year mortgage. Below, we’ve provided a detailed comparison of the two options.
15-Year Vs. 30-Year Mortgage – What’s the Difference?
Chances are, if you’re taking out a loan to buy a home, you’ll obtain either a 15-year or a 30-year mortgage. The main difference between the two is that one has a repayment period of 15 years and the other has a repayment period that’s twice as long. Another major difference is that rates for 15-year mortgages are lower than 30-year mortgages.
Benefits of a 30-Year Mortgage
30-year mortgages tend to be more popular than 15-year mortgages. Buyers who pursue this option enjoy benefits like:
- Lower monthly payments: 30-year mortgages have lower monthly payments than 15-year mortgages. For this reason, many buyers prefer them because it puts less strain on their monthly budget. However, it does mean that you end up paying more interest due to the increased lifespan of your loan.
- Ability to put more towards savings, retirement, or other expenses: Saving money on your monthly mortgage payment could give you access to cash that you may choose to invest elsewhere. You can put the money in your savings account, retirement fund, or use it for other expenses like a car payment, home improvements, or other bills.
- Option to pay over: If you choose to, you can pay more than the required amount on your mortgage each month to reduce your principal balance. This can help you pay off your loan faster. It also means that if you come up on a month where you need the extra money, you’ll have the option to use it however you want. The only thing is, that you’ll want to check with your lender to see if there are any prepayment penalties that may apply.
Benefits of a 15-Year Mortgage
If you like the idea of paying off your mortgage faster, you may want to consider a 15-year mortgage. Some of the benefits of this option include:
- Pay off your mortgage faster: With a 15-year mortgage, you’ll pay off your loan twice as fast as you would with a 30-year mortgage. Yes, your monthly payments will be higher, but you’ll also pay down your debt in half the time.
- Save money on interest: Another reason to consider a 15-year loan is that you’ll save tons of money on interest. Interest rates for 15-year mortgages are significantly lower than those for 30-year mortgages.
- Build equity faster: If you opt for a 15-year loan, you’ll be able to build equity faster. Equity is the difference between what you owe on your mortgage and what your home is worth. Equity is valuable because it can be converted to cash, which provides financial security. It can also be used as a stepping stone to building long-term wealth.
Explore Your Options
As a first-time home buyer, it’s important to both know and explore your options. Call our office today to speak to an expert who can provide you with the professional advice and assistance you need.