Which is better: A 30 year fixed rate or go for a lower interest 15 year mortgage?
In a typical scenario a 15 year mortgage allows you to pay off your mortgage quicker and save a significant amount of money on interest, but a 30 year loan may be a practical choice for most people because it has more advantages. Here are the differences:
Your payments will be less with a 30 year mortgage which allows more consumers to qualify for home purchases. In most cases you can make additional principal payments to pay off your mortgage faster without penalty.
The extra dollars outlaid on 15 year mortgage make little sense if they keep you from building savings or contributing to an IRA, 401(k) plan, or college fund. The amortization schedule of 30 year fixed is back-heavy, with payments in the early term big on interest and lean on principal. A 15 year fixed is always lean on interest can lower its benefits for the taxpayer, but while you gain more of a tax break from a 30 year loan, this should not be the main reason when deciding on a term. The 30 year borrower pays less in yearly taxes because they pay out much more in interest.
The extra dollars outlaid on 15 year mortgage make little sense if they keep you from building savings or contributing to an IRA, 401(k) plan, or college fund. The amortization schedule of 30 year fixed is back-heavy, with payments in the early term big on interest and lean on principal. A 15 year fixed is always lean on interest can lower its benefits for the taxpayer, but while you gain more of a tax break from a 30 year loan, this should not be the main reason when deciding on a term. The 30 year borrower pays less in yearly taxes because they pay out much more in interest.
So when deciding which way to go it all comes down to choice and circumstances:
Choose the 15 year mortgage if you have the financial means and stability to assume the payments. Your interest savings will be substantial and you will be able to own your home outright faster.
With the 30 year loan you will have lower payments and greater flexibility , and you can always make an extra payment to pay down your mortgage quicker when the funds are available.
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