20-Year vs. 15-Year vs. 30-Year Mortgage

Find a mortgage that comfortably fits into you future financial plans.

Find a mortgage that comfortably fits into you future financial plans.

Before you start shopping for a mortgage, make sure you understand your financial priorities. A longer mortgage length, or term, may mean lower payments, but it will take longer for you to build up equity in your home. Take future plans, like starting a family or paying for college tuition, into account before signing on the dotted line.

15-Year Mortgage

Since 15-year mortgages have a relatively short term, the lender takes on less risk and passes that along to you in the form of smaller up-front fees and a lower interest rate. There are risks involved for you, however. Since you will pay the loan off in a relatively short period of time, your monthly payments are higher than mortgages with a longer term, and you are locked into making these higher payments. This could force you into refinancing the loan or selling the home if your financial situation changes drastically during that time and you are unable to make the payments.

20-Year Mortgage

With a 20-year mortgage you can completely pay for your house considerably earlier than with a standard 30-year mortgage, and the payments are slightly lower than those for a 15-year mortgage. Up-front fees and the overall interest rate will be somewhere between the two as well. A 20-year mortgage term could be a good fit if you are in a good financial situation currently and are planning to start a family in a few years. With a mortgage of this length, you could potentially have your home paid off by the time your children are ready to start college.

30-Year Mortgage

One of the most common mortgage terms is 30 years, most likely due to the lower monthly payments that come along with it. However, the length of the loan makes this mortgage term riskier for the lender and it often comes along with a higher interest rate and up-front fees for you. As with any mortgage, you can opt to make additional principal payments when your financial situation allows to help shorten the length of the loan. By making optional additional payments, you will save on interest in the long run, but you are still paying the higher interest rate that comes along with a long-term, 30-year mortgage.

The Bottom Line

When evaluating your various mortgage options, a mortgage with a shorter term will be paid off sooner and accrue less interest over the life of the loan, making it the best deal of the bunch. You need to assess both your current situation and your expected future financial situation before making a decision on whether it is in your best interest to have lower house payments now, or to save money that you would spend on additional interest over the long term.

 

About the Author

After attending Fairfield University, Hannah Wickford spent more than 15 years in market research and marketing in the consumer packaged goods industry. In 2003 she decided to shift careers and now maintains three successful food-related blogs and writes online articles, website copy and newsletters for multiple clients.

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