Should I choose a 15-year or 30-year mortgage?

It depends. With a shorter-term mortgage, your payments will be higher, but your interest rate usually is lower. The reason your payment is higher is because you are paying the same amount of financing off in half the time. This means that you pay your mortgage off sooner and because of the lower interest rate, you’ll spend a lot less doing so.

If you are not planning on staying in the home indefinitely, then a 30-year may make more sense. Because a 30-year mortgage is by definition longer, the amount you pay each month is less. However, the higher interest rate means it will cost you more over the life of the loan.

If you are unsure about your ability to sustain higher mortgage payments but you would like to do a 15-year mortgage, choosing a 30-year loan and paying extra each month can be a practical, money-saving compromise. The reason being, anything you pay over the minimum required monthly payment is applied straight to the principal balance. This allows you to pay the home off sooner and save on the interest because no interest was applied to the portion of your payments that exceeded the minimum required amount.

For more practical tips and insights, contact your Loan Officer.

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