One of the decisions that you will have to make when you get a mortgage is how long of a loan term you want. A fixed mortgage can be had for a variety of term lengths ― the most common are the 15-year fixed mortgage and the 30-year fixed mortgage.
Advantages of a 15-Year Fixed Mortgage
One of the biggest advantages of getting a 15-year fixed mortgage is that you are repaying the loan in a shorter period of time ― saving you money on interest. A 15-year loan term means you will be paying interest for half as long than with a 30-year term.
In many cases, mortgage lenders will offer a lower interest rate on a 15-year fixed mortgage, since a shorter loan term represents a smaller risk. By paying a lower mortgage rate for a shorter period of time, you will be saving a substantial amount of money overall. In fact, if you get a 15-year fixed mortgage instead of a 30-year fixed mortgage, you could save up to tens of thousands of dollars during the life of your loan.
Advantages of a 30-Year Fixed Mortgage
The main advantage of a 30-year fixed loan is that the monthly mortgage payments will be lower, since the loan is being repaid over a longer period of time. A 30-year term is beneficial for those who need affordable payments or have concerns about cash flow. The interest rate on a 30-year fixed mortgage is generally higher (than a 15-year term), but often no greater than 0.25% or 0.50% more.
Another advantage of the 30-year fixed mortgage is the flexibility that comes with it. Some homeowners choose to make extra payments towards their principal balance to shave some years off the loan term (though you should be wary of any prepayment penalties). If money gets tight, you can always suspend the extra payments and stick to the regular, more affordable payments. As long as your home loan does not come with prepayment penalties, it is possible to pay-off your 30-year fixed mortgage early (even in 15 years).
Bottom Line
Before deciding on the best length for your mortgage term, it is important to consider all of the options. There are benefits and drawbacks to both 15-year and 30-year fixed mortgages. In the end, you need to think about what will work best for you and your lifestyle.