Is the 15-Year Mortgage The Right Option For You?
While 15-year mortgages are a lot less popular than their 30-year counterparts, they may not be as beneficial as them. When you need a mortgage to buy a home, you’ll have to find out what may be the terms of your loan repayment. Most lenders need several options to consider whether it is the right mortgage option such as a 30-year or a 15-year mortgage. A 15-year mortgage has a much lower interest rate and it costs much less over time, the two most important factors that can help loan seekers. Another important reason that makes people go for the 15-year mortgage is they find it exciting that they can go debt-free in about half the time. However, it may not be the right option for most people. Find out the reasons here.
It Makes You Commit to a Longer Mortgage Plan
When you choose a 15-year mortgage, you end up committing to making higher payments over the course of a longer loan term. You may end up making these payments for the entire lifespan of the loan, which means you’re taking on a huge financial commitment for 15 years. When you have to pay such a large amount of money to the mortgage each month; you also cannot do much with the money either and not use the money for investing.
Most mortgage rates are pretty low and the return on investment you end up earning by paying off the loan is just saved interest. You end up accepting an ROI much below that than what you may earn with stocks or ETFs. Committing to such a big monthly payment can leave you with much less money as you pay off high-interest debt and cover most of the other costs that may make it difficult to stick to a budget.
It May be Difficult for You To Cover
Since a 15-year loan requires you to pay monthly payments, you may find it tough to qualify for the loan depending on your present financial credentials. To get the right mortgage you need to find the right lender that offers you a higher debt-to-income ratio, rather than being able to select from a wide variety of different loan providers. It may get you the best rates and terms.
There May Be a Higher Risk of Foreclosure
If you have to make higher monthly payments, it can be harder to come up with the money when you face much financial trouble. As a result, you may run the risk of foreclosure which is applicable for longer-term loans which have lower required monthly payments. You can reduce the risk of the same by saving for emergencies; however, your emergency fund needs to be of a bigger amount in order to cover 3-6 months of paying mortgage payments,
You May Not Get The Flexibility You Need
Let’s get this straight, a 15-year mortgage is a long-term commitment. Sticking to a long 15-year mortgage becomes particularly difficult as you may get locked into paying off the home loan early, even if the payments seem too expensive or you decide you’d rather prioritize other things.
If you instead opt for a loan that promises a longer payoff time; you’d have the option of paying more during the months you could do and less in the months you can’t; you will be obliged to pay off the loan in 30 years, but you may not get the flexibility you want.
Your Income Isn’t Reliable Enough
Your income also decides whether the 15-year mortgage works for you; for example, if you own a business that has its fair share of uncertainties, then this mortgage may not be the right option for you. No matter what are the circumstances, if your income isn’t predictable now, a 15-year mortgage may seem like trouble because of the higher amount of payment you need to pay in this type of mortgage. This may also lead to credit card debt. If your earning streak remains erratic you could also run the risk of losing your home.
While 15-year mortgages have their own set of benefits, they may not turn out to be a particularly good move for some people. If your income isn’t steady and you don’t have much savings to rely upon then; you also need the flexibility to spend your money on varied things, then a 30-year loan may turn out to be a much better choice.
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