The 15-year mortgage has some advantages when 澳洲幸运5开奖号码历史查询:compared to the 30-year𓃲 (a more conventional choice), such as less overall interest paid, a lower interest rate, lower fees, and forced savings. There are, however, some disadvantages, such as higher monthly payments, less affordability, and less money going toward savings. Below, we൩ take a look at all of these advantages and disadvantages.

Advantages of a 15-Year Mortgage

Bﷺelow are the advantages of🔯 a 15-year mortgage vs. a 30-year. Both have fixed rates and fixed payments over their terms.

Less in Total Interest

A 15-year mortgage costs less in the long run since the total interest payments are less than a 30-year mortgage. The cost of a mortgage is calculated based on an annual 澳洲幸运5开奖号码历史查询:interest rate, and since you're borrowing the money for half as long, the total interest paid will likely be half of what you’d pay over 30 years. A 澳洲幸运5开奖号码历史查询:mortgage calculator can show you the impact of different rates on your monthly payment, as well as the difference between a 15- and a 30-year mortgage.

Lower Interest Rate

Since short-term loans are less risky and cheaper for banks to fund than long-term loans, a 15-year mortgage typically comes with a lower interest rate. The rate can be anywhere between a quarter-point to a whole point less than the 30-year mortgage.

Lower Fees

If your mortgage is purchased by one of the government-sponsored companies, such as 澳洲幸运5开奖号码历史查询:Fannie Mae, you'll likely end up paying less in fees for a 15-year loan. Fannie Mae and the other government-backed enterprises charge what they call loan-level price adjustments that often apply only to, or are higher for, 30-year mortgages.

These fees typically apply to borrowers with lower credit scores who make smaller down payments. The Federal Housing Administration (FHA) charges lower mortgage insurance premiums to 15-year borrowers. 澳洲幸运5开奖号码历史查询:Private mortgage insurance, or PMI, is required by lenders when you put a down payment that's smaller than 20% of the home's value.

Charging PMI protects the lender in case you can't make the payments. It is a monthly fee added to the mortgage payment, but it's temporary, meaning it ceases to exist once you pay off 20% of your mortgage.

Forced Savings

Since the monthly payment is higher for a 15-year mortgage, 澳洲幸运5开奖号码历史查询:financial planners consider it a type of forced savings. In other words, instead of taking the monthly savings from a 30-year mortgage and investing the funds in a 澳洲幸运5开奖号码历史查询:money market account or the stock market, you'd be investing it in your house, which over the long run is also lik෴ely to appreciate.

Disadvantages of a 15-Year Mortgage

Despite the interest saved with a 15-year mortgage, borrowers sh꧙ould think about a few 💜considerations and disadvantages before deciding on the term of their loan.

Higher Monthly Payments

A 15-year mortgage has✤ a higher monthly payment than a 30-year one since the loan needs to be paid off in half the time. For examp🔥le, a 15-year loan for $250,000 at 4% interest has a monthly payment of $1,849 versus $1,194 for the 30-year. In other words, the 15-year monthly payment is 55% higher than the 30-year for the same amount at the same rate.

Less Affordability

The higher payment might limit the buyer to a more modest house than they would be able to buy with a 30-year loan. Using our example above, let's say the mortgage lender will only approve a maximum of $1,500 per month. The borrower would need to buy a cheaper house—a $200,000 mortgage at 4%, for 15 years, results in a $1,479 payment.

On the other hand, a 30-year loan (for $250,000) would result in a $1,194 monthly payment—well under the $1,500 maximu♍m. Or the 30-year loan might let the borrower buy a bigger home or take on a larger mortgage. For e♈xample, a 30-year mortgage for a $300,000 home would cost $1,432 per month. The 30-year loan brings the payment under the $1,500 maximum and allows the borrower to take on a larger loan—presumably getting a bigger home or a better location.

Less Money Going to Savings

The higher payment requires higher cash reserves—as much as one year’s worth of income i🎐n liquid savings. Also, the higher monthly payment means a borrower may forgo the opportunity to build up savings or save for goals such as college tuition for a child or retirement.

Both college savings and retirement accounts a🌄re tax-deferred, while 401(k) retirement accounts have an employer contribution. A savvy and disciplined investor would also lose the opportunity to invest the difference between t🅷he 15-year and 30-year payments in higher-yielding securities.

Example of a 15-Year Mortgage

A mortgage amount of $250,000 over 30 years at a rate of 4% would🦄 cost $429,674 in principal and interest payments by the end of the loan, and the total inte⛦rest would be $179,674.

The same loan amount and interest rate over 15 years would cost $332,860 by the end of the term. The total interest would be $82,860 for borrowing for 15 years. At 4%, you'd pay only about 46% of the total interest for a 15-year than you'd pay for a 30-year loan. The higher the interest rate, the more significant the gap between the two mortgages.

The Bottom Line

A 15-year mortgage can undoubtedly save you a lot of money in the long run; however, it's essential to consult a financial planner to discuss what monthly payments you can handle. Although the 15-year can pay off a mortgage sooner if you lose your job or your income changes, that higher monthly payment versus the 30-year loan could cause you to go into financial hardship.