When it comes to the wide world of mortgages, 30-year fixed rate mortgages are considered to be the gold standard that most home buyers use to purchase a new property. And while there are many positives that make them optimal option for getting into a new home, there are also some negatives that could have them costing you more money over time. As a result, you may want to compare them with 15-year fixed rate mortgages to determine which loan better aligns with your long term goals.
At BrightPath, our experienced loan officers will help you understand the differences between 15- and 30-year fixed rate mortgages so that you can make the best decision for your finances and your future.
The Similarity Between 15- and 30-Year Fixed Rate Mortgages
The similarity between 15- and 30-year mortgages is in the way they are structured. Since both are fixed rate mortgages as opposed to adjustable rate mortgages, both have set interest rates and monthly payments that do not fluctuate throughout the entirety of the loan term. So, each are a great option if you are seeking stability from unpredictable interest rates and protection from unstable housing markets.
Differing Fixed Rate Mortgages Terms and Their Impact on Overall Cost
While 15- and 30-year fixed rate mortgages provide stable interest rates and monthly payments, their differing loan terms will affect your overall costs.
On the outset, 15-year fixed rate mortgages appear to be costlier. This is because their shorter loan term creates a higher monthly payment compared to 30-year fixed rate mortgages with longer loan terms. However, the interest rates of 15-year will be lower than with 30-year fixed rate mortgages because the shorter loan term is less risky for the lender, so they will be willing to negotiate a lower rate. This allows you to pay off the interest payments more quickly, which will save you thousands of dollars compared to what you will spend with a 30-year fixed rate mortgage.
While the monthly payments associated with 30-year fixed rate mortgages are lower, the term of the loan is much longer. Since longer loans term pose a larger risk to the lender, they will charge a higher rate of interest for their troubles. So, it takes significantly more time for you to pay off the interest compared to 15-year fixed rate mortgages. With the higher interest rate and longer loan term, you are likely to spend double in costs compared to what you will with a 15-year fixed rate mortgage.
Affordability and Other Concerns
While costs are important when choosing a mortgage, there are other considerations to keep in mind that may make a 30-year fixed rate mortgage the better option to fit your needs.
While a 15-year will cost you less money over time, the higher monthly payments might not be feasible for your fiscal circumstances. With its lower monthly payments, a 30-year fixed rate mortgage will be the better choice for you if affordability is a big concern. And an added benefit of spending less on monthly payments is that it frees up money that you can put towards other financial goals like building up your savings.
Also, think about the property that you are interested in purchasing. If you are like many others, you may have your eye on a house that that is a bit out of reach. However, depending on your income, a 30-year fixed rate mortgage will make it easier for you to afford a more expensive home than a 15-year fixed rate mortgage. But be sure to weigh other expenses including property taxes and maintenance costs to ensure you are not overborrowing and putting yourself at risk.
Seek Mortgage Solutions at BrightPath to Get into Your Dream Home
While a 15-year will save you more money over time, a 30-year fixed rate mortgage will be better if you need lower monthly payments or want to build a budget to put towards other fiscal goals. No matter what option you choose, our experienced loan officers will be there to provide their expertise and advice every step of the way.
Contact us today to schedule a consultation.
At BrightPath, we provide premium services that will exceed your expectations.