Should I Get a 15-Year or 30- Year Mortgage?

Currently, interest rates for shorter-term mortgages are less than longer-term mortgages, though that fact could change without warning. Your monthly payment (plus property taxes and insurance) is usually much higher for a 15-year mortgage

Albany, NY (prHWY.com) July 30, 2012 - It seems like a simple question: Should you get a 15-year mortgage, or should you get a 30-year mortgage? The question may be simple, but the answer certainly isn't.

Advantages of 15-Year Mortgages

Currently, interest rates for shorter-term mortgages are less than longer-term mortgages, though that fact could change without warning. Your monthly payment (plus property taxes and insurance) is usually much higher for a 15-year mortgage, but the amount of interest you pay over the life of the loan is significantly lower.

With the short-term mortgage, you can accelerate the payoff of your new home, giving you complete control of your asset much sooner. This could be important for older people who want to coordinate paying off their mortgage with their retirement.

Finally, 15-year mortgages allow you to build equity in the home faster. As property prices continue to stabilize over the next 10 years or so, the equity investment in your home could become an important factor if you want to upgrade or need to move.

Disadvantages of 15-Year Mortgages

A 15-year mortgage locks you into a higher monthly payment, month in and month out. If your family experiences a temporary or permanent change in finances, that payment will still need to be made to prevent foreclosure.

Because the payment is higher, it may also be difficult to maintain if property taxes or insurance rates rise significantly during the term of the loan. Those funds are typically held in an escrow account paid out by the mortgage company, so your final monthly payment is always more than simple principle and interest paid toward the home loan.

You must balance all your financial goals, including paying your mortgage. Money should be left over at the end of the month for retirement investments, saving for kids' college funds, putting away an emergency fund, and so on. And, you'll probably want to take an occasional vacation, too.

Advantages of 30-Year Mortgages

A 30-year mortgage locks you in to a lower monthly payment, which may be more comfortable when you add in expenses like insurance, property taxes, and daily living.

Having more money available at the end of the month also gives you freedom to invest in things that bring a higher return in the end. With mortgage rates currently at historic lows, putting that extra money aside in a retirement account or stock account might net you more wealth.

As of this writing, you're still allowed to deduct mortgage interest payments from your gross income at tax time. Your tax advisor and financial planner can tell you if this deduction is really an advantage to your family overall; the total amount of interest paid may overwhelm your tax advantage.

Disadvantages of 30-Year Mortgages

Depending on your interest rate, you'll pay two to three times your principle in just interest over the life of a 30-year loan. A home that costs $150,000 when you buy it ends up costing $300,000 or more (depending on interest rates) by the time you're done paying off the mortgage.

Some mortgage companies won't allow you to lock into a shorter term, if they feel your debt-to-income ratio is too high when you apply. The general rule is your monthly mortgage payment shouldn't be more than 30 percent of your income, though that rule varies with different lenders. Basically, the underwriter wants to be sure you can meet the obligation right now and in the future, in case your financial circumstances don't happen to improve.

What about getting a 30-year mortgage and paying extra each month as though it's a 15-year mortgage? This plan could work for your family if you have the financial discipline to follow through. As with all mortgage questions, it is best to talk with a mortgage specialist and your financial advisor before choosing a mortgage that is right for you.

Need more information about which mortgage term is right for you? Speak with a Licensed Loan Originator at Homestead Funding today. The mortgage specialists at Homestead Funding can assist borrowers looking for residential financing; FHA loans, VA loans, Conventional and Jumbo mortgages. Whether you are a first time home buyer or refinancing your current home, Homestead Funding can assist you. For a complete list of Homestead Funding's products visit the Mortgage Products page here. Homestead Funding's specialists are located throughout New York State, Connecticut, Massachusetts, Pennsylvania, Virginia and Maryland. To speak with a mortgage specialist near you, visit http://www.homesteadfunding.com/locations/search.cfm.

Homestead Funding Corp. is a multi-state licensed mortgage banker with branches located in New York State, Connecticut, Massachusetts, Pennsylvania, Virginia and Maryland. In operation since 1995, our corporate headquarters is located in Albany, New York where we have perennially been the area's largest independent mortgage lender. We have tens of thousands of satisfied customers, originated billions of dollars in residential mortgage loans and maintained a reputation of exceptional service, honesty, integrity and financial reliability. For more information, please visit online at www.homesteadfunding.com.

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Categories: Real Estate

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