The Advantages of a 15-Year Mortgage

A mortgage is one of the most significant financial commitments that many people will make in their lifetime. The duration of the loan is a critical factor to think about when deciding on a mortgage. One popular choice is the 15-year mortgage. This option offers several advantages over its more commonly used counterpart, the 30-year mortgage.

Below, we discuss the major benefits of a 15-year mortgage.

Lower Interest Rates

One of the most appealing advantages of a 15-year mortgage is the lower interest rates it typically offers. Because the loan term is shorter, lenders see less risk in issuing these mortgages and thus may offer a lower interest rate. This could lead to significant savings over the duration of the loan.

Less Total Cost

While a 15-year mortgage will likely come with a higher monthly payment, the total cost over the life of the loan is typically less. A combination of a lower interest rate and the shorter loan term may result in less interest paid over the life of the loan.

In addition, with a 15-year mortgage, homeowners may reach the point where they have 20% equity in their homes faster than with a longer-term mortgage due to the larger monthly payments going more toward the principal. Once a homeowner has built up this equity, they can request to have the private mortgage insurance (PMI) removed from their mortgage payments. Thus, by opting for a 15-year mortgage, homeowners may save thousands over the loan term by eliminating PMI payments sooner.

Opting for biweekly payments on a 15-year mortgage can further result in a homeowner's ability to save money and cost. By making 26 half-payments, you could end up making an equivalent of 13 full payments per year instead of the standard 12. These extra payments accelerate the payoff of your mortgage, possibly reducing the total interest accrued. Since interest is calculated based on the remaining balance of your mortgage, the faster reduction in principal leads to less interest accumulation. Depending on your loan terms, this strategy could potentially save you thousands of dollars and shorten your mortgage term. However, it's crucial to confirm with your lender how they handle biweekly payments to ensure it results in the desired benefits.

Faster Equity Building

With a 15-year mortgage, a larger portion of your higher monthly mortgage payment goes toward the principal balance and less toward interest payments, allowing you to build equity in your home faster. It also provides a cushion should you need to tap into your home equity for emergencies or other financial needs.

Financial Freedom Sooner

In half the time it would take with a 30-year mortgage, a homeowner with a 15-year mortgage can outright own theirs. This shorter time frame can lead to significant financial freedom. It means fewer years of having a significant portion of your income tied up in housing costs, which can open up opportunities for other financial goals such as investing, saving for retirement or starting a business.

A 15-year mortgage can be a smart financial decision for those who can afford the higher monthly payments. This option provides numerous advantages such as reduced interest rates, decreased overall cost, quicker accumulation of equity and the possibility of achieving financial independence sooner. However, it's crucial to thoroughly evaluate your financial circumstances and future goals before deciding on this or any mortgage term.

Is a 15-year Mortgage Right for You?

While the benefits of 15-year mortgage are many, lower monthly payments aren't part of the equation. This can make it a less feasible option for some homeowners, especially those with tight budgets or other high-cost financial obligations. It's always essential to take into account your personal financial condition and long-term plans before determining the mortgage type that is most suitable for you.

We'd be happy to discuss if a 15-year mortgage is an option that achieves your financial goals through homeownership. Contact us today for more information.

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