The Mortgage Brothers Show
15-Year Fixed Mortgage vs. 30-Year Fixed Mortgage
In this episode, we went over commonly asked questions about 15-year-fixed mortgages versus 30-year-fixed mortgages.
A Brief Overview of the 15-Year and 30-Year Mortgages
With a 15-year fixed mortgage, you’ll have a lower interest rate, but your payments will be a lot bigger since you’re aggressively paying down the principle. Now, this is a shorter path to homeownership and will ultimately — if you’re able to handle the higher monthly payments — give you more long-term savings.
A 30-year fixed mortgage, on the other hand, has a higher interest rate, but you’ll be paying less month to month. If you’re a first-time home buyer in your 20s or if you don’t have a lot of cashflow, a 30-year fixed mortgage is probably the right choice for you. You’ll also have more opportunities for refinancing. Very few people do 15-year cash-outs.
Three Factors to Consider
Ask yourself which mortgage is right for your phase of life. Perhaps you’re younger and you want a longer mortgage so you can optimize your ability to borrow. If you’re older, you might want to get paying it off out of the way. In that case the 15-year would be right for you.
If you’re financially independent, not on a budget, and can payout a home easily then the 15-year is a no brainer. But for most people, the 30-year mortgage is going to help you cashflow college, cars, student loans, and medical bills. And when we say cashflow, we don’t just mean pulling money out. It also means having the money set aside in a rainy-day fund since your monthly payments aren’t as high.
Generally speaking, 15-year fixed interest rates are about a half a percent less than that for 30-year fixed, coming in around 3%. As well, the purchasing power on a 30-year mortgage will outpace the interest you are going to save on at 15-year.
Pros and Cons of the 15-Year Mortgage
- Lower interest rates and quicker payoff
- Like any fixed-rate loan, they also offer stability. The monthly payment won’t change no matter what happens to inflation or market interest rates.
- A shorter path to homeownership
- Long-term savings due to lower interest payments
- With larger monthly payments than for a 30-year, it can make it harder to qualify
- Tighter range of home affordability
Pros and Cons of the 30-Year Mortgage
- Lower monthly payments
- The debt to income ratio will be lower allowing you to get approved for a higher loan amount. This will give you a larger budget when looking at a house.
- You can claim a sizable tax deduction based on interest payments for you 30-year loan.
- A greater interest rate
- Not ideal if you’re planning on moving soon
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Signature Home Loans, LLC does not provide tax, legal, or accounting advice. This material has been prepared for informational purposes only. You should consult your own tax, legal, and accounting advisory before engaging in any transaction. Signature Home Loans NMLS 1007154, NMLS# 210917, and 1618695. Equal housing lender.