Mortgage Products – Which one is best for you?

A 15 Year Mortgage vs. 20 Year Mortgage vs. a 30 Year Mortgage

Possibly one of the largest purchases for many people in their lifetime is the purchase of a home. When buying a home, there will be many questions you should ask yourself during the process. Such as: Do I want a 15 year, 20 year or even a 30 year mortgage for my home? Here is a quick breakdown of the popular of the two products – 15 year and 30 year.

If you are thinking about making your mortgage last for 15 years, there are some benefits for you paying your mortgage off sooner.

Although your monthly payment will be a bit higher, in the long run one of the benefits you will have is saving money overall. How? The most obvious reason, a 15 year mortgage dramatically cuts your home-loan repayment time thus cutting the interest down. So, the faster you pay off your loan, the less interest you would need to pay, which could save you tens of thousands of dollars over the life time of the mortgage. Not only that, the interest rate for a 15 year mortgage are often better rates than a 20 or 30 year mortgage.

Additionally, after 15 years, there’s no more mortgage to repay; the loan is paid in full. This is five years shorter than loans with a 20-year terms and half the number of years as compared to a 30-year loan. It’s a great option for people who would rather save money later in life. Simple really, spend it on your home while you are working, save it when you retire.

Another benefit of a 15 year mortgage is you build equity in your home faster than a 20 or 30 year mortgage. If you combine a shorter mortgage term with the rising house prices, you could have exponentially grown the amount of equity you have. This is a great benefit especially if you want to refinance down the road. The risk you present to your lender when you try to refinance will be smaller due to your smaller loan-to-value ratio with the 15 year mortgage compared to a 20 or 30 year mortgage.

Are you a little further in your career and maybe looking to retire in the next 10 to 20 years? If so, a 15 or a 20 year mortgage might be the best option for you, especially if you want to downsize your home after you retire. When you choose a 15 year mortgage, it allows you to reduce the strain on your cash flow in retirement. You will be paying off the loan much quicker than a 30 year loan and might even finish paying off the loan before you retire. So when you do retire, you won’t have to pull a lot out of your savings to cover living expenses.

For other homebuyers, a 20 year mortgage might be an even, middle ground. If you’re planning to purchase or refinance a home, be sure to compare all available mortgage rates and choose the right lender for your needs. Want to learn more? Call Marc Demetriou at Residential Home Funding at (973) 492-0117 or e-mail [email protected]