15 Year Or 30 Year Mortgage Which Should I Choose
So you've just decided on a fixed or adjustable rate mortgage and think that all your home buying decisions are behind you. Well, guess again. It's now time for another important choice - should I do a 15-year mortgage or a 30-year? (Note that these two terms are the most typical. You may also encounter 20 or even 40-year terms)
If you are tight on money and had to stretch to purchase your home, then the choice of your mortgage terms are pretty obvious. You would probably choose to take the 30-year plan or longer term. In doing so, you would not necessarily be making a bad choice. This plan does have it's advantages.
30-year mortgages have the edge on 15-year plan as far as monthly payments are concerned - usually having lower payments as the advantage. This will give you the room to devote more of your monthly income towards other things like savings or even towards other goals such as retirement. This way you can actually have a life and not be such a financial slave of your home. Having more available money is nice. A 30-year will mean more payments to make in the long run, but again it means lower monthly payments because of a longer time period to pay it off. If you had a 7% interest rate on a 30-year mortgage, for example, your payments would then be about 25% lower than on a comparable 15-year mortgage loan.
Now, what if you are leaning towards obtaining a 15-year mortgage since you have enough income to afford a higher payment? Do you think this would be advantageous? Well, not always. What if you go ahead and make smaller payments on a 30-year mortgage and put the extra money towards a productive use instead of making payments towards and 15-year mortgage?
The 30-year mortgage may be for you if you do make good use of that extra money like using that extra cash to contribute to a tax-deductible retirement account that you can access. You can get an immediate reduction in your taxes if you make contributions to employer-based 401k's and 403b plans. Another plan that carries this advantage are self-employed SEP-IRA's or Keogh. This will also enable you to compound your money, tax-deferred, over the coming years. You could also contribute to an (IRA) or individual retirement account if you have employment income.
If you find it hard to save money anyway and you have exhausted all options for contributing to your retirement accounts as far as possible, then going for a 15-year mortgage may offer you a good forced-savings program.
You will, conversely, have the flexibility to pay off your mortgage faster it you choose the 30-year term. You just want to make sure to avoid mortgages that have early pay-off penalties. You also want to be advised that putting yourself in a position of paying on a 15-year mortgage carries certain risks, namely not being able to meet the higher mortgage payments required if you fall on tough financial times.
Shayne has been writing articles for nearly a year. His newest interest is in children's products. So come visit his latest website that features kids toys such as baby doll beds as well as a baby doll changing table that every play nursery needs.
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