The Benefits Of Long Term, Fixed Mortgage
Here are the main benefits for borrowers who prefer the long term, fixed-rate mortgage option:
Lower Monthly Payments
If you take out a 30-year mortgage you’re going to pay less from one month to the next in actual payments than you would with a 15 or even a 20-year mortgage.
Assuming an average interest rate on a $200,000 mortgage you would pay $1,461 a month for a 15-year mortgage. A 30-year mortgage, on the other hand, would cost you $1,043 per month.
You Can Predict It
When you have a 30-year mortgage you’re going to be able to count on the payments being a set amount and also being low.
If something happens in your life you can better weather because your payments are low.
Increase Your Budget
With a longer-term mortgage you’re actually going to have more money available to you through your mortgage.
Because the lender is looking at how much you can afford to pay per month, you’ll be able to get a larger loan because the length of time means payments are split even more.
They look at your mortgage payment being 28% of your total gross income per month, but if you take a longer loan out you’ll have a lower monthly payment even with a larger home.
You Can Get More
You’ll be able to look at your debt to income ratio and get a better amount because that amount is lower.
The Benefits Of Short Term, Fixed Mortgage
Here are the main benefits for borrowers who prefer the short term mortgage:
Pay it Off Fast
A shorter-term mortgage means that you’re not going to be paying on your home for as long.
It’s going to be a bit more expensive but you’re definitely going to have a lot of benefits to it as well. You can pay it off during your best earning years too.
Save on Interest
The shorter the term that you have the less you’re going to pay in interest. You’ll pay more each month, but more of that amount is going to go toward the principal.
Let’s say you have a $200,000 mortgage that has an interest rate of 4.75% for 30 years. At the end of that 30 years, you’re going to end up actually paying $375,588 with all that interest.
On the other hand, if you took out that $200,000 mortgage with a rate of 3.82% (the average rate for a 15-year mortgage) over 15 years you’re only going to pay $263,052.
You’re going to save over $100,000 in total interest by going with a 15-year mortgage instead of a 30-year mortgage.
That’s going to be a whole lot of money, but it can be a little difficult to make that kind of investment. You don’t know what you’re going to have for an income 15 years out and you could end up in financial trouble if you’re not careful.
Keep in mind how you’re going to use that money as well.
If you are going to put that extra money you would be spending into an account or use it to pay for something else then it might be a good idea to take the longer mortgage.
If you’re not going to do that, however, you may want to take the leap on a larger mortgage payment.