Buying a home is one of the biggest decisions you’ll make in your life. Not only will it determine things like the people you’ll meet in your neighborhood and what school your kids will go to, but it will also have a profound impact on your financial life.
While most people will traditionally choose a 30-year mortgage, going with a 15-year mortgage has some definite benefits that you might enjoy, if you’re able to work within the higher monthly payments. So to help you determine if this is something you’d be interested in doing, here are three reasons why you should choose a 15-year home loan instead of a 30-year home loan.
To Pay Less Interest
Although your monthly payments will be lower if you choose to stretch out the life of your loan over 30 years, you’ll also be paying interest every month over those 30 years. So if this is something you’d like to avoid, you may want to look into a 15-year loan so that you’re paying less interest.
According to Justin Pritchard, a contributor to The Balance, a 15-year loan has you paying less interest in two ways. First, 15-year loans will often have better interest rates than loans for 30 years. This means that the proportion of interest you’ll be required to pay will be less. And in addition to this, you’ll be paying interest for a shorter period of time, as was mentioned above.
Build Fast Equity
While your monthly payments will be larger with a 15-year loan as opposed to a 30-year loan, there can be some real benefits to this.
One thing you might want to consider is that you’ll build equity in your home faster with this shorter loan. As a result of this, Barclay Palmer, a contributor to Investopedia.com, shares that you can view this as a form of forced savings. This means that instead of slowly adding equity to your home over the span of 30 years, you’ll have an extra 15 years to invest the money you would have been paying toward your mortgage and begin saving much more than you otherwise would have been able to.
Get Out Of Debt Sooner
What naturally follows when you have a 15-year mortgage instead of a 30-year mortgage is that you’ll get out of debt much sooner. And while this might mean buckling down a lot over these 15 years, Rebecca Lake, a contributor to U.S. News and World Report, shares that if you’re able to pay off your home in just 15 years rather than 30, you could very well wind up retiring with zero home debt, which could put you in a very positive financial place at that vital period of your life.
If you’re trying to determine whether you should go with a 15-year mortgage or a 30-year mortgage, consider using the information presented above to help you in making this decision.