Is a 15-Year Mortgage Loan Better Than a 30-Year?

If you're thinking of buying your first home, in addition to worrying about having enough room to stash your partner's abundance of stuff, you're probably wondering whether a 15- or 30-year mortgage loan is right for you. Both offer advantages and disadvantages, and which one is better will depend on things like how large a monthly payment you can truly afford, and your overall long-term financial goals.

Debt-Free Sooner

An obvious attraction to taking out a 15-year mortgage versus a 30-year mortgage is that you will own your home and eliminate your debt sooner. If you buy your home at age 25, you'll be mortgage-free at the ripe young age of 40. You'll also end up paying much less in total interest with the 15-year mortgage because of the shorter term and the fact that interest rates are typically lower than they are for 30-year mortgages.

Higher Payments

On the other hand, your monthly payments will be higher with a 15-year mortgage. It may be difficult for you to come up with the additional money month after month, and the added stress may put a strain on your relationship with your partner. You'll need to seriously consider whether you can realistically afford your monthly payment and if the additional sacrifices it may require are truly worth it.

Building Equity Faster

A 15-year mortgage allows you to build equity faster due to the larger payments. Equity is the portion of the home that you own, rather than the bank, and can be used to obtain needed cash in the form of a home equity loan or line of credit. And the more equity you have, the less vulnerable you will be in the event that home values drop.

Lost Investment Opportunities

The additional money required to make the monthly payments on a 15-year mortgage is money that isn't available for other investments, like your 401(k) plan at work. With a 30-year mortgage, you'll have more money at the end of the month, which you can invest elsewhere or save for things like your kids' college education. You'll also have the flexibility to prepay your 30-year mortgage by making additional payments if you wish. And you could always refinance to a 15-year mortgage at some point as your financial situation improves.

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