A home is one of the biggest purchases most folks will ever make. So, if you’re like most people, you’ll need a mortgage to buy it.

Because there are several available options for mortgage loans, buyers frequently wrestle between choosing a common 30-year loan, or alternately, a 15-year mortgage with a faster payoff schedule.  Both choices have plusses and minuses. Hence, before deciding on the best program to select, take a look at these facts.

A 30-year mortgage offers flexibility.  Monthly payments are lower, because they are spread out over 360 months. If you should unfortunately become ill, lose your job, or have other financial difficulties, you are less likely to be challenged by the commitment to pay your mortgage. Moreover, if you want to accelerate the payoff of your mortgage, you can simply elect to pay extra each month to reduce your loan principal or make extra principal payments whenever your cash flow comfortably permits.

However, keep in mind that a 30-year mortgage generally carries a higher interest rate than a 15-year loan because the bank assumes a much longer risk with 30-year borrowers. Therefore, 30-year borrowers often still pay more interest as a result. 

On the other hand, a 15-year mortgage with a lower interest rate can save you money. The shorter term of the loan coupled with lower rates can add thousands of dollars to your pocket, a result of saved interest payments over the life of the loan.

A 15-year mortgage requires borrowers to fully amortize their loans in half the time of 30-year mortgage.  So, if you can afford the associated higher monthly payments of a 15-year loan, this might be the right alternative for you.

The downside of a 15-year mortgage includes its lack of flexibility as compared to a 30-year loan. Once you are committed to the higher payments, should future financial difficulties arise, paying less, as you would with a 30-year mortgage, is simply not an option.

Thus, to determine which mortgage path to follow, the best course is to secure a solid pre-approval for your mortgage before starting to shop for a home.  Lenders are readily available to assist with this request.  If you do not have a reputable, experienced and successful lender in mind, but would like to speak with someone who really knows the ins and outs of the mortgage arena, I can provide recommendations to trusted lender affiliates with established reputations for producing results. They can help you to determine what payments to anticipate and assess how this works for your current budget.  When the time is right to search for your next new home, please contact me today for a consultation. I will be happy to provide you additional information on the buying or selling process, help you to find a new home or determine the value of your existing property.

 


Allyson Hoffman, ABR, ACRE, CDPE, CRS, e-PRO, GRI, SFR, SRES
RE/MAX Villager
Serving Chicago's North Shore, North and Northwest Suburbs
847-310-5300
[email protected]

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Allyson Hoffman is your ultimate real estate resource for Chicago's North Shore, North and Northwest Suburbs and surrounding areas. Visit my website for detailed information regarding today’s real estate markets.

Photo courtesy Fernando Mengoni, Stock.XCHNG.