Deciding Between a 15-Year and 30-Year Loan
One of the biggest benefits of a 15-year home mortgage is the ability to pay off your loan quickly, according to moneycrashers.com. In addition, you’ll save thousands of dollars on interest expenses over the life of the loan. Equity – the difference between what your house is worth and what you owe on the mortgage – builds at a faster rate with a 15-year loan than with a 30-year loan. Middle-age buyers, who want to pay off their mortgage by the time they retire, often opt for the 15-year loan.
So then, what are the benefits of a traditional, 30-year mortgage? A lower monthly payment is the biggest benefit of a 30-year loan. In many cases, younger home buyers may need the lower payment in order to qualify for the loan. In addition, some buyers prefer the security and peace of mind that a lower payment offers.
Keep in mind that the interest paid on a mortgage is tax deductible. Some high-earners, self-employed individuals and independent contractors may benefit from the longer term.
Financial analysts at bankrate.com offer a third scenario. Borrowers can choose the 30-year option and then pay extra money toward the principal whenever their budget allows. This financial flexibility is especially beneficial for younger buyers who expect their earnings to increase in the coming years.
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