The Major Mortgage Decision: What Did You Choose?

15 or 30 Years of House Payments; That is the Question

Purchasing a home can be an arduous process, fraught with a great deal of paperwork, back-and-forth negotiations and, of course, the endless search for both the perfect home and the perfect mortgage. Among the barrage of questions a potential homeowner will have to consider in this process is the decision between a 15-year mortgage and a 30-year mortgage. It comes down this: Should a homeowner focus more on the monthly payment or the process of paying off the loan faster?

The answer is different for everyone, depending on the specific financial situation. 

While many borrowers are, in fact, attracted to the 15-year option, according to Mary Estes, chief operating officer of First Commerce Credit Union, most still opt for the 30-year loan, particularly those purchasing a home for the first time. “We have still found that 30-year loan products are dominant in this market,” said Estes. “We recommend 15-year loans, when possible, as the loan is paid off much quicker this way. It’s not an all-or-nothing proposition, though. We remind customers to be diligent in paying an extra $100 or $200 a month on top of their monthly mortgage payment for 30-year loans. Doing so can actually knock five to eight years off of the loan and equal big savings on interest payments.”

There are reasons why the 15-year mortgage is not for everyone. It comes with a higher monthly dollar amount, and Estes says that families still raising small children or settling in to the early stage might not be able to afford the larger payment. However, despite the higher monthly payment, the 15-year mortgage does come with a lower interest rate relative to the 30-year product. This means that the payments on the principal are larger than they are with the 30-year loan. 

First-time homebuyers often benefit from the 30-year option because a lower monthly payment allows them to purchase a more expensive home than they might be able to afford to pay off in just 15 years. For most people buying a home for the first time, the name of the game is to get as much house as possible for the money being spent. 

Estes also cites the fact that many homebuyers start with a 30-year option and then, five years’ worth of payments later, they refinance and take the 15-year option. “We see a great deal of this in our customers that refinance because they’ve had five or so years to pay down the mortgage,” she said. “When they refinance to a 15-year option, they are getting the benefit of a better interest rate. This is commonly seen in customers that are planning for retirement or interested in paying off their homes before their kids are ready for college. They tend to look at the 15-year mortgage products as a stronger option.”

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