Mortgages usually come in either 30 or 15-year durations, and the choice has a huge impact on your finances. Shorter mortgages have gradually become more popular among today’s homebuyers. It is easy to see why; a 15 year loan has several attractive selling points:
- Significant interest savings, usually amounting to tens of thousands of dollars
- Quick loan payments to make room for retirement and other financial obligations
- A faster way to build equity in your property
These advantages are great, but the drawbacks are also worth considering. A 15-year mortgage always has a higher monthly payment. If you wind up in a financial emergency, this could be a massive burden. In the worst case, you may have to refinance or sell to avoid foreclosure.
Despite it being the best choice for long-term savers, not everyone is capable of taking on a 15-year mortgage. To find out whether one would be suitable for you, ask yourself the following questions.
- “Will my monthly income support it?” – Experts suggest that no more than 25% of your monthly income should go towards a mortgage. Anything more than that may be unsustainable over long periods. Ideally, you should be able to pay it off even on just one income source.
- “What other responsibilities will I have in the future?” – If you plan to have children or switch careers sometime in the near future, the instability could greatly affect your ability to pay off the loan. As Utah mortgage professionals explains, a 30-year loan might be a safer choice.
- “Can I reliably maintain an emergency fund?” – As mentioned earlier, a financial emergency, like your car breaking down or losing your job, could be disastrous. You need to be capable of building and maintaining an emergency fund for these instances.
A mortgage is the biggest debt you will ever have. Before making your decision, weigh your options and consider every relevant factor.