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30-Year and 15-Year Mortgage Benefits and Drawbacks

Feb 27, 2018 - Posted by: Kelly Fleiner

 

So you are ready to buy a house, you are working with a lender and have a decision to make.  You have been listening to Podcasts and reading every home buying blog you can get your hands on and you think you may be an expert at this point. The one decision you are struggling with is whether you should do a 15 or a 30-year mortgage; you are qualified for both.  Here are some tips to help you decide. 

Benefits of a 15-Year Term Mortgage

Benefits

  • Pay less interest over the life of the loan
  • Lower interest rate than a 30-year term
  • Private Mortgage Insurance (PMI) goes away in half the time

Drawbacks

  • Requires a higher payment which may restrict your budget
  • High monthly payments make it difficult to put extra money into other accounts such as savings
  • May require higher cash reserves

“When members are considering a 15-year term, I usually advise them to stick with a 30-year term but to set up their payments like they have a 15-year term. This way they can pay off their mortgage quickly, but it also allows them room in the budget if a life event occurs requiring them to reduce payments,” says Nicki Jemmings, Real Estate Loan Officer for Rocky Mountain Credit Union.  

Benefits of a 30-Tear Term Mortgage

Benefits

  • Lower payment
  • Qualify for more home (larger dollar amount) because of lower payments
  • Most common mortgage--helps you get more home for the money

Drawbacks

  •  With the 30-year term, you are going to be making your payment for a lot longer than the 15-year term
  • Higher interest rate compared to 15-year mortgage

The Consumer Financial Protection Bureau (CFPB) also has an entire mortgage resource guide on its website. The CFPB is responsible for recently putting several mortgage rules in place that are designed to protect consumers from the horrors of the 2007-08 crash. The CFPB has a Homeowner Roadmap that I highly recommend to all potential home buyers.

After the recent housing market crash, more and more homeowners are opting for a shorter term on their loans to hopefully not get stuck in problems of the past. In 2013, USA Today published a great article offering decision making tips between a 30-year and 15-year mortgage.

While making your home loan decision, I suggest seeking advice from your loan officer.  He or she is the expert and can definitely help you make the best decision. If you are still in the early stages of the mortgage process, check out NerdWallet’s calculator on the payment difference between 15 and 30-year mortgages.

Overall, there is not a BIG glaring difference between the 15-year and 30-year mortgage.  It usually comes down to what you and your budget can afford every month. Get a more in-depth look at the mortgage process with this article. We would love to hear your thoughts on why each term is the better choice.

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