Is a 15 Year or 30 Year Mortgage Right For You?

February 26, 2015

 

UNDERSTAND THE DIFFERENCE BETWEEN A 15 YEAR AND 30 YEAR MORTGAGE

There’s a lot of nitty gritty details that go into buying a home. So you find the perfect place in Harris County, GA where you imagine yourself raising a family. Now, how do you pay for it?

As an experienced real estate agent, I help my clients understand how to pay off their most important purchase of their lifetime. The two most common ways are to take out either a 15 year or 30 year mortgage.

Taken strictly in numbers, deciding between a 15 year or 30 year mortgage is pretty straightforward. A 15 year mortgage requires a higher monthly payment but less interest. A 30 year mortgage involves a smaller monthly payment, but significantly more interest (you can see exactly how much you’ll save between the two plans using this free online calculator).

You may think that if you can afford a 15 year mortgage, then you should go with a 15 year mortgage over a 30 year mortgage. But there’s other, personal factors to consider. Ask yourself these three below:

HOW DO I FEEL ABOUT DEBT?

Financial guru Dave Ramsey recommends saving enough money to afford a “15 year mortgage with monthly payments less than 25% of your take home pay”. It’s difficult to argue with having the peace of mind of creating a safety net for your mortgage.

As we’ll get to later, if you have other options for the extra money you’ll save each month with a 30 year mortgage, that may be a more sensible option.

But if you value security over risk, then Ramsey’s path is certainly sensible.

HOW SECURE AM I FOR THE FUTURE?

While you may have the finances available to pay off a 15 year mortgage, look down the road ten years from now. Are you still moving up in your job to justify the payments?

Your family also factors into the decision. Similar to having financial discipline, paying a higher 15 year mortgage will strain your ability to save for your children’s college education. Or maybe you want to build your financial portfolio for retirement.

Even if a 15 year mortgage allows you to pay off your home sooner for less money, you may need the extra money that a 30 year mortgage provides to work on other aspects of your financial portfolio.

IS THIS MY FIRST HOME?

First time home buyers typically decide on a 30 year mortgage for several reasons. First time home buyers, according to Inside Mortgage Finance publisher Guy Cecala, are “trying to get in as much home as they can”.

On the other hand, first time home buyers are typically not looking to settle in their first home, and there’s more options than 15 year or 30 year mortgages. In this case, Cecala recommends an adjustable rate mortgage so they can resell the home.

Is a 15 year or 30 year mortgage right for you? Call me at 706.662.0125, or email me today to find out! Check out more of my available listings in Harris County, GA for Waddell Realty.

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