Which Loan Would You Choose?
This is a question that many people ask themselves when going to buy a home and taking out a mortgage. Most people want the shortest possible term and the lowest possible monthly payment. But beyond those broad guidelines, it is hard to determine which of these is best for a given person. All mortgage options have their advantages and disadvantages.
The type of loan you select has a big impact on the amount of money you pay over the life of your loan, as well as many other things. It is important that you have a good understanding of all the pros and cons of each type of loan before you make your final decision.
Pros in Choosing A 30 Year Mortgage Rate Over 15 Year Mortgage Rate
Better value for money: Over the lifetime of a 30 year mortgage, fixe payments will typically be lower than if you’re paying for a 15 year mortgage.
According to the Freddie Mac (Federal Home Financing Agency), the average interest rate for a 30 year fixed mortgage rate in 2017 was 3.94%. It was 3.3% for a 15 year fixed mortgage rate. Which means you’ll pay less interest over 30 years than you would over 15 years.
- Lower monthly payments: With a 30 year mortgage, your monthly payment will obviously be higher than if you’re paying a 15 year mortgage. But if you can handle the higher monthly payments, it might be worth it because it means paying less interest overall.
- Peace of mind: It’s one thing to pay off a mortgage in 15 years, but what if you suddenly get laid off and need a few extra years to save up for a home. If you have a 30 year mortgage, you can always refinance and pay a larger down payment without penalty. You aren’t going to be stuck for 15 years in this situation.
What could you do with an extra $226,951?
Financing a property is quite expensive and hence, homeowners often look into their options and mortgage refinance. With mortgage refinance, the homeowners can:
Lower their monthly payments by refinancing to a lower rate.
Consolidate home and several other debts into one.
Reverse mortgage- draw an income from their home equity.
Refinancing to a lower rate can always increase a homeowner’s net monthly income at the end of the month; hence, he can afford to spend more on certain items. This is, of course, just a breakdown of interest rates and is subject to change depending on market conditions.
Cons in Choosing 15 Year Mortgage Rate Over 30 Year Mortgage Rate
A traditional mortgage loan is for an amortized period.
The terms of the loan, also called the mortgage term, could be 15, 20 or 30 years. The length of the timeframe of the mortgage determines the interest rate on the loan. The longer the amortization period, the lower the interest rate on the loan.
Most people prefer to go with 30 year mortgage rates. The rationale is that on a monthly basis, the interest rate is lower, giving you more disposable income to use for paying off the house before the loan matures. If people go with a 15 year mortgage rate, the monthly payments are higher, but they also eliminate more of the principal each month. They also reduce the amount of interest they pay over time.
There are two main advantages to choosing a 30 year mortgage. A lot of people choose 30 year mortgage rates because it:
Making an Extra Payment
If you have some extra money that you can put towards your mortgage, don’t even think about it. Just make an extra mortgage payment. You will save yourself some money by avoiding the extra interest that you would have had to pay if you had used your extra money to invest or pay off your credit cards. And you will eliminate the amount of time you will have to spend making extra payments each month. Even better, if you can cut the length of your mortgage in half, you will save thousands of dollars in interest payments over the life of the mortgage.