Most borrowers opt for a 30 year fixed mortgage instead of a 15 year term. To many people it seems like the only question whether or not to get a 15 mortgage is if you can afford the monthly payment. While affordability is the first factor to weigh when considering a 15 year mortgage it is not the only factor. Ask yourself the questions below when considering what type of mortgage is best for you.
Can you afford the payments on a 15 year mortgage?
This is the question that most borrowers ask themselves, and this is usually where most people decide they cannot afford a 15 year fixed rate mortgage. They either can’t afford the higher principal and interest payment on a 15 year mortgage, or they do want want to purchase a less expensive home in order to afford the payment.
Obviously, if you cannot make they payment on a monthly basis, a 15 year fixed rate mortgage is not for you. If you can, ask your self the following questions.
How long do you intend to be in the home?
This question is two fold. If you plan on living in the home for only 5 years, the 30 year fixed rate mortgage will allow you to pay less money during those 5 years. However, a 15 year mortgage will allow you to apply more toward the principal of the loan. Ultimately, if you only plan on staying in the home for the short term it is wise to go for a 30 year mortgage. It can allow you to buy a more upgraded home that will aid you in the real estate market when it is time to sell.
Are you refinancing?
If you already currently own the home and are looking to refinance to a lower rate, consider refinancing to a 15 year mortgage. It is possible that you will still see savings in your monthly payment due to the decreased interest rate and you will be able to pay off the home much sooner. While your monthly payment savings may not be as great you will save thousands over the life of the loan.
How long until you plan on retiring?
Choosing a 15 year fixed amortization is a wise investment as you are approaching your retirement years. The shorter term will allow you to pay off the home sooner and free up your cash flow once you are retired.
Can you still afford to save?
While the savings in interest over the term of a 15 year mortgage is appealing, it is critical not to tie up all of your funds in your home. Be sure that after your making your monthly mortgage payment that you are still able to set aside money. You should still have other financial goals such as having adequate cash reserves, contributing toward retirement or funding a college savings account.
Make these considerations the next time you are choosing a mortgage loan product. Perhaps a 15 year mortgage is within the realm of affordability for you. Weigh the risks and the benefits of having a shorter term mortgage, and make the right plan for your financial situation.