One thing you will get with a 15-year mortgage is the lower interest rate, helping you complete your home loan much faster. And of course, you should budget carefully for the higher monthly payments. In addition to this, you need to look at some pros and cons that come with a 15-year mortgage. A 15-year mortgage is an excellent home loan for home buyers who can pay much higher monthly installments and want to close their mortgage in half the normal time while saving a significant amount of interest. For this type of mortgage, you’ll need a continuous income and enough money left after your monthly installment to handle routine expenses and emergencies.
Pros and Cons of a 15-year Mortgage
These days, it’s seen that less than two in six borrowers are using a 15-year mortgage. It’s needless to mention that many borrowers turn away from the shorter home loans when they know that it needs a huge payment on a monthly basis.
A 15-year mortgage can be described as a fixed-rate mortgage and will be cleared completely in 15 years only when you make all the payments on schedule. These mortgages come with a fixed rate, which carries the interest rate and payments the same till the mortgage is completed. However, your taxes and insurance payments can change. If you are thinking about a 30-year mortgage you then definitely looking for higher rates but a lower mortgage payment.
Let’s have a look at some of the pros involved in a 15-year mortgage
If you choose a 15-year mortgage you probably going to save buckets of dollars in interest over the life of the loan. With this, you would have significant savings. A 15-year mortgage offers an average interest rate of at least 3/4 of a percent lower than 30-year mortgages.
The big benefit of 15-year mortgage loans is that you will grow equity faster. When your monthly mortgage payment is higher and you pay less interest, equity will grow faster. A 15-year loan term is an excellent way to save a lot. Remember, higher pay each month will let you spend less and invest more. Also, if anything changes in your financial status you would be compelled to refinance, or miss payments. In short, with a 15 Year Mortgage, you would be allowed to pay the mortgage off faster, get a lower interest rate, enjoy substantial savings over the life of the loan, and eventually have lower closing costs in some cases.
Always, shorter-term loans are lower at risk and cheap for banks to fund. If you got your mortgage from one of the government-sponsored companies you would likely pay less in fees for a 15-year loan.
Now, let’s have a look at the reasons why you shouldn’t go for a 15-year mortgage.
One big reason home buyers choose not to get a 15-year mortgage is that it demands a higher mortgage payment. In a 15-year mortgage payment, you would be asked to pay more hundreds of dollars more per month. The monthly payment on a 15-year loan is higher and it causes your DTI ratio.
The cons behind a 15-year mortgage are higher monthly payment, more cash reserves need lower maximum loan amount and less money for savings.
A thing with the shorter mortgages is that higher payment might restrict the buyer to a more modest house. The higher payment means a borrower may not get a chance to build up other savings.
Is a 15-year mortgage good for you?
A 15-year, fixed-rate mortgage is a wonderful option for borrowers who can pay heavily while still saving and investing for retirement. Completing a mortgage provides many people a feeling of freedom and safety. The 15-year mortgage has become a choice for those who want to own the home by a certain time.
His customers typically use it to refinance, aiming to become debt-free by retirement or free up cash flow for remodelling or to help adult children pay off student loans or buy a home.
But if your income is not consistent, avoid this type of mortgage. Just question yourself, what would happen if your income is average and your payments become too much? Understand your needs and situation and take the right decision.