Which Type of Mortgage Is Right for You?

Would you like to own your home within 15 years or 30 years?

When you’re approved for a mortgage loan one of the first questions asked will be if you want a fixed rate loan for either 15 or 30 years. Depending on your financial situation and income flexibility, you should determine which is the right loan for you.

Look at the rates and your income and decide if the loan repayments are something that you can truly afford without any problems. Experts recommend spending between 25 to 35% of your pretax income on your mortgage — this includes property taxes and home insurance payments.

Interest rates can vary between both loans, so it’s important to determine which rate would suffice.

First-time homebuyers

If you’re a first-time homebuyer, you may want to consider a 30-year mortgage to allow for smaller mortgage payments and overall flexibility of the loan. If you’re in the market and looking for additional property, you can look at the variables in choosing a 15 year mortgage. The bottom line is that you should consider the time of the loan, which could save you thousands of dollars in the end.

An FHA, or Federal Housing Administration loan can also help, as down payments can be as low as 3.5% of the purchase price, and most of your closing costs and fees can be included in the loan.

15 years

If you’re looking to pay off the mortgage in half the time of the 30-year loan, consider this option. The 15-year loan forces the consumer to discipline themselves into making those payments on time.

One big plus is that you can save money over the life of your loan and receive a lower interest rate. Also consider the fact that you will pay off the loan quicker and save on half the amount of interest. If you plan to only live in the house for a few years, this loan may be better for you.

You can still lock in a lower rate with this loan which may offset the increase in the monthly payment. The downfall of the loan is that you will have a higher mortgage payment.

If you miss even one payment due to a financial emergency, you risk your house being put on the foreclosure block. The lender is not flexible with this type of loan so you will not be able to switch to the 30-year mortgage should you change your mind. Really consider if this option is a viable one for you.

30 years

This option is great for someone who is a first-time homebuyer and is also the more popular choice due to its affordability.

Depending on the interest rate and size of the loan, you can expect to pay hundreds of dollars less than with a 15-year loan.  The flexibility of the payments on this loan varies.

Even though it may seem like you can afford to pay off a 15-year loan, you may want to consider the 30-year option due to the fact that there is flexibility. You can pay off your 30 year mortgage in half the time by paying more each month, which can go toward the principal amount.

If by chance there is a time within the life of the loan that you run into money problems, you can go back to the original payment agreement without any stipulations. Let’s consider the idea that if you borrow $100,000 for 30 years at 8% interest, you will ultimately end up paying the lender about $265,000. This includes the $165,000 in interest.

Whatever option you decide, make sure you do your homework before you commit to paying off a mortgage.

Steven Banass

Director of Quality Control

truerate partners

350 Pfingsten Suite 103 l Northbrook, IL l 60062

DIRECT:  (224)-374-1470

www.trueratepartners.com