Mortgage Advice

15 or 30-Year Mortgage: Which Option is Right for Me?

May 15, 2014

In last week’s blog post, we talked about the difference between fixed and adjustable-rate mortgages. However, our discussion about different types of mortgage loan options doesn’t stop there. There are many other factors that go into deciding which mortgage loan is right for you.

One factor you’ll want to give special consideration to is mortgage length. The length of your mortgage loan and the interest rate associated with it will determine your monthly mortgage payment. When combined with a great interest rate, the right loan term can help you maximize savings over the life of your loan. 

Historically, the conversation has revolved around whether to get a 15 or 30-year mortgage. However, 20-year mortgages are also becoming a popular option for homebuyers.

If you want smaller mortgage payments…
For about 60% of the clients I speak with, their primary concern is keeping their monthly mortgage payment low. They don’t care if it is a conventional, FHA, 15-year or 30-year loan. As long as the payment is low, they are happy. If your primary goal is to keep your monthly mortgage payment as low as possible, you’ll probably want to go with a longer term, such as a 30-year mortgage loan. The longer the term, the longer you have to spread the principal payments out over the life of the loan.

If you want to pay less interest…
Other clients I serve want to pay the least amount of interest possible during the life of the loan. These clients are willing to pay more per month in exchange for less interest overall. Shorter mortgage terms, like a 15-year mortgage loan, have lower interest rates. This means you will pay less interest on the loan. When compared to a 30-year mortgage loan, you’ll also save 15 years worth of mortgage payments. This can add up to tens of thousands of dollars in accrued interest savings.

If you want to pay off your mortgage by a specific time…
Lastly, there is a small group of clients who desire to pay off their mortgage at a specific time. Their motivation for doing so is usually tied to specific life events and financial motivations, such as getting ready for retirement or sending a child to college. In this case, the best mortgage term is one that ends before that specific date. In this case, we would tailor a mortgage to fit your needs. I recently had a client in Northville, MI who wanted to pay his house off in 18 years for retirement. So, we crafted a 20-year mortgage with accelerated payments to create the perfect 18-year mortgage.

Whatever your lending needs, it is important to meet with a qualified loan officer who can guide you through the decision process. While a 30-year fixed-rate mortgage is the “industry standard,” there is a reason why so many other options are available.

Have a question or want to learn more? Send us a message and we’d be happy to provide you with an answer!