When you’re buying your first home you have to make many important decisions. One of the most important is what type of mortgage you’ll get. A fixed rate mortgage is obviously better for pretty much everyone but whether you should choose a 15 or 30 year mortgage depends a lot on your financial situation.
A 30 year mortgage comes with a lower monthly payment but requires you to pay more interest. How much more? Well, here’s the difference between a 15 year mortgage and a 30 year mortgage calculated in cold numbers (factoring in an API of 6%).
A 15 year mortgage and a 30 year mortgage compared
|Loan Amount||Loan Length||Monthly Payment|
In this example, over the entire life of the loan you would save $36,708. With the average house now costing well over $225,000, most people can save even more money by taking out a 15 year mortgage instead of a 30 year mortgage.
If there’s any way you can afford to make the payments on the 15 year mortgage (and you have a solid emergency savings to fall back on in a crisis) it’s definitely worth it. In fact, unless you’ve already found your dream house on the market it’s probably worth waiting until you can afford the payments on a 15 year mortgage to purchase your first home.
Unfortunately most people will still end up paying more in interest than they do for their actual homes, but a 15 year mortgage can significantly decrease the amount of interest you pay. If you want to decrease the amount of interest you’re paying even further, you’re going to have to pay your mortgage down early.
Remember, only you know what type of mortgage is actually best for your life. If you’ve found your dream house, don’t feel pressured to take a 15 year mortgage you can’t really afford — you’ll only suffer for it more in the long run.