Choosing Between A 15 Or 30 Year Mortgage
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The difference between a 15 and 30 year mortgage is fairly simple- you pay a 15 year mortgage off faster. Since it is less time, the payments on a 15 year mortgage will be higher than on a 30 year mortgage.
But the 15 year mortgage builds equity in the house a lot more quickly than the 30 year loan, with the consequence that the monthly payments are higher. After this mortgage is paid, you will have equity in the home and can redo the loan if you like.
This is a personal choice, since some people prefer to have lower monthly payments, and some like to build equity quickly. What if there is no question about being able to afford the higher payments, should you automatically choose the 15 year mortgage? Remember that with a 30 year loan, you can pay it off more quickly by making higher than minimum payments, or by paying twice a month. The benefits are not exactly the same as choosing the 15 year home loan in the first place, but you will build equity faster than maintaining the required payments. This is an option that appeals to a lot of people, since they feel that they can make higher payments when it is right for them, but keep the lower payments when they prefer to.
Of course, many people believe they can increase wealth by other means. Let us say that the monthly payment on a $100,000, 30 year loan at 7% is $665, but on a 15 year loan at 6.75% (the rate is always higher for the longer term) is $885. How would you make use of the savings of $220? However, the equity built is a lot lower $5,868 for the 30 year loan vs. $22,933 for the 15 year loan. Someone who is good at investing in the stock market may think they could put the funds to better use, or perhaps someone with children would consider an investment in a 529 plan more important. You be the judge.
Many people simply prefer the flexibility offered by the 30 year loan as compared to the 15 year loan. If you are disciplined enough to put the funds that are saved into a different investment vehicle that fits better in your portfolio or your time of life, it may be the right choice. But for those with little discipline to put the money away, the money will be wasted and they should have stuck with the 15 year mortgage to build wealth automatically.
Article Source: Articlelogy.com
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