15 Year Mortgage vs. 30 Year Mortgage: Which One is Right for You?
A 30 year mortgage has long been the default financing option for people considering buying a home. Yet more and more buyers are showing interest in shorter term loans, especially on the recommendations of popular financial gurus. There’s no one-size fits all approach to mortgages. But if you’re a prospective buyer in the Las Vegas area with good credit and you’re trying to determine what loan options you should consider, here’s a closer look at how each type of loan breaks down.
The major differences
A 15 year loan and a 30 year loan have two essential differences. The major one that most buyers think of is the monthly payment. With a longer loan, your monthly payments decrease and therefore typically make it easier to afford a larger home. Sometimes, people simply want to keep their monthly payments as low as possible to maximize their income. The second factor is interest. The interest rates on 30 year loans are often slightly higher than shorter term loans. However, over the life of the loan, you’re likely to pay significantly more in interest payments over 30 years.
Doing the math
Consider a $160,000 mortgage. In our case study, the rate for a 15 year loan is 4.5 percent and a 30 year loan is 5%. With a 15 year loan, buyers would have a monthly payment of $1224 and pay just over $60,000 in interest over the life of the loan. With a 30 year mortgage on the same property, the monthly payments drop to $859, but raises the interest paid to just over $149,000 over the 30 year period.
Neither approach is right for every buyer. Specifically, your priority might be keeping your payments as affordable as possible in today’s volatile economy. Conversely, you may be financially secure in your job and want to minimize the amount of money that you pay in interest over time.
Understanding your priorities can help you evaluate different financial models. This information is crucial to allowing your lender to design a loan program that helps you meet your home ownership goals and prioritizes your bigger financial plans. If you’re unsure how best to proceed, outline your overall objectives and money goals. Your lender will be able to help you model different scenarios and understand their impact on your financial situation.
Are you a prospective homebuyer in the Las Vegas area who is looking for the best option to finance your home? Contact Sydnee Johnson today to discuss your needs and learn more about whether a 15 year mortgage or 30 year mortgage is right for you.