According to the National Association of Realtors, an estimated 5.51 million homes were sold in 2017. If you're considering purchasing a home, chances are you're not sure which mortgage is right for you.
Most home buyers choose either a 15-year or a 30-year mortgage. If you're also choosing between the two, here are a few questions you should ask yourself before making a final decision.
How Much House Can You Afford?
For many home buyers, the cost of a monthly mortgage is the biggest factor they consider when shopping for a home. The amount of house you can afford, how much you are willing to spend, and which amenities and features you cannot live without are factors as well. Because the payments are spread out over a longer period of time, a 30-year mortgage means you will pay less each month.
For example, if you have several kids and need a larger, more expensive home, a 30-year mortgage might be the better option. Additionally, if your budget is tight and you cannot live without a second bathroom, a 30-year mortgage can give you the ability to purchase a home with more amenities.
However, if you can afford a larger payment, a 15-year mortgage makes more financial sense. This is because you will pay dramatically less money in interest over the life of the loan. You might not get the house of your dreams, but you will pay off your mortgage in half the time.
How Long Are You Planning on Staying in Your New Home?
If you've purchased your dream home, chances are you are planning on staying for several decades. However, if you're a young couple with a bright financial future, you may only plan on staying in your new home for a few years. If you're planning on staying in your home for a short period and you can afford a larger payment, a 15-year mortgage makes more sense.
Paying your house down more quickly means you will have more equity. The more equity, the more you can get back when you sell your home. Conversely, if you are going to remain in your home for several decades, or the life of the 30-year mortgage, obtaining this longer mortgage often makes more sense.
Are You Refinancing Your Current Home?
From obtaining a lower interest rate to pulling money out to pay for your kid's college or a new roof, there are several reasons why a homeowner might need to refinance their home. If you're considering refinancing your current home rather than buying a new one, a 15-year mortgage is often a better choice. For example, if you've already paid 10 years of a mortgage and you refinance for a lower interest rate, you can pay off your home more quickly.
In many cases, if your interest rate is lower, you will wind up paying less each month on your mortgage payment than if you hadn't refinanced your original 30-year loan.
What Are Your Long-Term Financial Goals?
Finally, if you are planning for your future and want to ensure you have enough money to take a dream vacation or send your kids to college, a 15-year mortgage makes the most financial sense. Once again, because the life of the loan is far shorter, you will pay much less in interest payments, and your home will be completely paid off in 15 years. If you want to sacrifice now to protect your financial future, a 15-year mortgage makes sense.
If you're planning on purchasing a new home, there are several questions you need to ask yourself before deciding if a 15-year or a 30-year mortgage is the best option for you. Contact a lender like NRL Mortgage LLC to learn more about your options.