Pros and Cons of a 15 or 30 Year Mortgage

Posted by Kenny Raymond on Monday, November 16, 2020 at 10:28 AM By Kenny Raymond / November 16, 2020 Comment

When purchasing real estate, you have a lot of big decisions that need to be made. From school zones, neighborhoods, home styles, and more, the list of decisions seems endless. Oftentimes, however, the decision on if you’d like to use a 15- or 30-year mortgage seems to be overlooked and many homeowners tend to use a 30-year mortgage by default. So, what is the difference? Many people are left wondering if one is better than the other.

15 Year Pros

#1 You’ll pay less interest over the life of the loan. Due to the fact that the loan is literally half the term of a general 30-year loan, that means that over the life of the loan you will generally end up spending half of the total interest once your loan matures.

#2 Lower Interest Rates. When choosing to use a 15-year mortgage it is fairly common to receive a lower interest rate than you would have been offered with the same credit scores on a 30-year loan, this saves you greatly over the life of the loan.

15 Year Cons

#1 You’ll have higher monthly payments. This goes without saying, when you shorten the length of the loan that means that your monthly payment will go up. This can make it difficult to put extra into savings or have more cash flow on a monthly basis due to the higher loan payment.

#2 Limits the market. Because you will have a higher monthly payment, what you may be able to afford on a 30-year loan, you cannot afford on a 15-year loan. This may require you to lower your budget which may limit the number of homes on the market.

30 Year Pros

#1 Low monthly payments. Due to the fact you are spreading out your payments over a 30-year loan that lowers your monthly payment making it more affordable for most buyers.

#2 More funds for Savings/Bills. By opting for a lower monthly payment may allow for you to have a better cash flow situation, whether those funds are used for other monthly bills or for savings.

30 Year Cons

#1 Slow Growing-Equity. With the way your loan is structured, you will be paying primarily interest for the first few years and making only a small dent in your principal balance. This will cause your equity to grow at a slower rate.

#2 You will pay more overall interest. Because you are paying a higher interest rate, for a longer period of time, your overall interest paid will be much higher than that of a shorter loan.

Ultimately it is up to you and your preferences on which loan term suits you best. There is no right or wrong, or better or worse loan as with all things there are pros and cons to each option.

If you’re currently searching for a new home, are in need of a seller’s agent to assist you in the listing of your property or have questions regarding the real estate within and surrounding Miami, please feel free to contact our office at any time. If you’re currently searching for a new home, are looking for a seller’s agent, or have any general questions regarding the real estate within the Greater Miami area, please feel free to contact our office at any time.