15 Vs. 30 Year Mortgage: Which One Makes Better Sense?

Buying a new home is often a very time-consuming and complicated process. There’s always questions about how much one can afford, what they’re looking for in a home, whether or not it’s the right time in the market to buy a new house, if all the T’s are crossed and the I’s are dotted, and there’s always the question of what type of mortgage should one get. If you can somehow get away with it, no mortgage is the way to go, but most of us will be stuck with a typical fixed-rate mortgage.

Fixed-rate mortgages make sense because there’s no question about where the APR will go. There is the question of whether one should get a fifteen or thirty year mortgage. A fifteen year mortgage will come with a lower interest rate and much less interest paid when all is said and done, but a thirty year loan means much smaller payments each month. Ask yourself these questions to determine which is right for you.

How long are you going to be living there? If you’re going to move in for the long term, it makes sense to go with the 15 and start building all sorts of equity. If you’re going to just be living there for a few years, it might make more sense to get a 30 year mortgage to keep your finances in a more liquid position for when you do move.

How much can you afford? Not everyone is going to be able to afford the payment on a 15 year mortgage, especially some of our friends out in California. With home prices the way they are, it’s unfeasible for some people to get a 15 year mortgage. If you have plenty of money to spare in your budget, go ahead and take the 15 year mortgage. You don’t want to get a mortgage payment that’s more than 30% of your take-home pay, otherwise there just won’t be enough money in the budget for anything else.

Are you happy living in a home you can afford? You might be in a situation where you want to buy a home, but the amount of home that you can afford is substantially less than what you can consider to be a decent home. If you can’t find a home that you like and can afford, it mike make sense to not get a mortgage at all, rent for a while and save up some more money.

What are your long term plans? What are you going to be doing 10, 15, or 20 years from now? Where will your kids be at in life? Is this home going to meet your needs for the next two decades? If not, can you find a home now that will? If you know that you’re going to try to upgrade in a decade or so, it might make sense to try to build the equity in your existing home so that when you decide to go house shopping you have plenty of money in equity to start with.

The mortgage you get really depends on your situation. What can you afford? What fits best with your long term plans?

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