We talked a lot of about mortgages and how to prepare to take one on, but there was one big question I didn’t get into earlier this week – deciding on taking on a 15 year or a 30 year mortgage.
Paying Less By Paying Faster
The big advantage with 15 year mortgages is that they usually have a lower interest rate, meaning over the life of the loan, you’ll be saving money. How much?
To give you an idea, I went to Bankrate and ran the numbers on one of their mortgage calculators.
For a $200k house with 20% down, a 30 year loan at 4.08% you’ll pay $147,235.00; with a 15 year loan at 3.40%, you’ll pay $55,505.00.
Paying Your Mortgage: 15 Years Vs 30 Years
With a difference that huge, you may feel that 15 year mortgages are always better. They certainly can be – depending on your situation.
If you’re trying to decide, here are a couple of questions you might want to discuss as a couple:
- What can you afford?
- What is the state of your emergency fund?
- What other financial goals or obligations do you have?
Don’t forget; just because you have a 30 year mortgage doesn’t mean you can’t pay it off sooner. You can treat your mortgage as if you have a 15 year loan.
You’ll pay slightly more in interest than with the 15-year interest rate, but still significantly less than with the 30-year loan. Then if an emergency comes up and they do, you have room to pause on the extra payments.
Of course – this requires a disciplined approach, so automating those extra payments may be essential for you to stick with it.
Thoughts on Choosing the Right Mortgage
I’d love to hear from you guys about how you’re handling your mortgage and why? If you are going the 30 year route, do you have any plans to pay it off sooner?