The simple difference between a 15 year or 30 year home loan is that the 15 year loan payments are calculated to be paid down after 15 years instead of 30. What that simply means is that you have to pay more each month with a fifteen year mortgage than you would with a thirty year loan.
But the 15 year loan builds equity in the home a lot more quickly than the 30 year mortgage, with the consequence that the monthly payments are higher. Of course, after the 15 year term is over (or less if you move or refinance in the interim), you have to get a new home loan and decide once again which is better.
This is a personal choice, since some borrowers prefer to have lower monthly payments, while some like to build equity faster. If it is not a question of affordability; is the 15 year loan automatically a better bet, or could you do something else with these funds? Remember that with a 30 year mortgage, you can pay it off faster by making higher than the required payments, or by paying twice each month. You won’t get the same advantages as you would if you chose the shorter term up front but you do pay your loan down more quickly to build wealth. This is an option that appeals to many people, since they feel that they can make higher payments when it is right for them, but keep the lower payments when they need to.
There are others who feel they would rather have lower mortgage payments and build wealth through other means. Let us say that the monthly mortgage on a $100,000, 30 year loan at 7% is $665, but on a 15 year loan at 6.75% (there is always a premium for the longer term) is $885. You theoretically have to choose an alternative investment for the difference of $220. You can build equity with the shorter term mortgage, however. What would have happened if you invested $220 in stocks every month, using dollar averaging purchases or putting it into a Section 529 plan for your children’s’ education? Judgment and needs can vary.
The bottom line is that the 30 year home loan proves to be much more flexible than the 15 year term. If you are disciplined enough to put the funds that are saved into another investment vehicle that fits better in your portfolio or your time of life, it may be the right choice. But for those with little discipline to put the money away, the money will be wasted and they should have stuck with the 15 year loan and built wealth automatically.
Thank you for reading our article.For more information, visit:life insurance onlinealso considerlife insurance quotes canada