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Most people who buy a home finance their purchase with a mortgage . Doing this can make it more affordable to become a homeowner. If you're considering buying a home soon, you may wonder whether to choose a 15-year or 30-year repayment term for your mortgage.
Believe it or not, you may want to opt for the lengthier loan term. While a shorter loan may be ideal for some, it comes with some risk. It's important to consider the long-term when deciding which is the best choice for your finances.
Let me explain why I'll always choose a 30-year mortgage over a 15-year home loan.
Your finances can change at any time
Many mortgage lenders offer 15-year and 30-year home loans. The primary benefit of getting a 15-year loan is the interest savings. Due to the shorter loan timeline, you can save thousands of dollars on interest. You might also qualify for a better interest rate with this home loan, since it's less risky for a mortgage lender to extend a loan over a shorter period of time.
Meanwhile, the primary benefit of a 30-year loan is lower monthly payments. Since your debt payoff is spread out over 30 years, the monthly payments could be more affordable. But you should consider which option is best for your situation. Don't focus only on today -- consider what your finances might look like a few years from now.
Remember, life can change fast. Even if you can comfortably afford the monthly payments for a 15-year mortgage now, that may not be the case in a few months or years. If you earn a good income, you could lose your job in the future or could be unable to work due to a severe illness.
The last thing you want to do is risk losing your home because you can't afford to pay your mortgage. This is why I'd recommend choosing a 30-year mortgage.
Do this instead to save on interest and eliminate your debt faster
With a 30-year mortgage, your monthly payments will be cheaper. This is advantageous because if your current financial situation is altered due to a life change, you'll have less difficulty affording your payments.
Here's the nice thing about a 30-year mortgage: You're not required to take the entire 30 years to pay off your home. You can make the regular monthly payments and plus additional payments toward the principal of the loan. By doing this, you'll eliminate your debt sooner and can save money on interest charges.
I've owned my home for five years and I'm already over three years ahead on payments because I've been doing exactly that. By making extra payments every month, I chip away at the principal balance much faster. This may be a strategy to consider to pay off your home loan faster.
Consider the long term
A 15-year mortgage may sound appealing and it does have its benefits. Saving money on interest and locking in a more affordable interest rate could be a win for your wallet. But even if you can afford a 15-year mortgage, you may want to reconsider.
A 30-year loan could be a safer bet in the long run. After all, you can make additional payments so you get rid of it sooner so you're not stuck making payments for 30 years. Are you looking for a new home? Review current mortgage rates for more information.
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