Posted on: 29 May 2017Share
Too often people look at their monthly payments for a mortgage and automatically decide on a 30-year versus a 15-year mortgage. But there are good reasons to consider a 15-year mortgage. The following are three of them.
If you are in your middle ages, it can help you after retirement
If this is a mortgage for a new home purchase and your expected retirement age is still in a time frame that is greater than a 15-year mortgage, it may be a good fit for your retirement planning. A 15-year mortgage offers a chance to pay off your house and still allow you to enter retirement without the worry of a mortgage payment. If you are in your middle ages, a 30-year mortgage is something you will likely have when you retire, but you are likely to have less income in retirement than you have right now. This may make your retirement budget tighter, and provide less money for retirement activities.
You will build up equity faster
Because of a shorter time frame in paying off your mortgage, each payment you make will mean that more of it is applied to the principle of the loan and not as much in interest. This is especially true when compared to a 30-year mortgage where a much larger part of the payment goes to paying interest. It simply takes longer to build up equity. The faster you build up equity, the better prepared you will be in a downturn of the market that can turn many home loans upside down, meaning the amount owed is greater than the value of the home. And in good economic times, the equity builds quickly in a 15-year mortgage, so it serves as a savings in case of a financial emergency.
Refinancing to pay off your mortgage before retirement
If you currently have a 30-year mortgage with a time frame that extends beyond your estimated retirement date, you may want to consider refinancing to a 15-year mortgage. If your income is now greater than it was when you got a 30-year mortgage and you have an income that will be stable in the years to come, the 15-year mortgage will allow you to pay off your home before retirement. Your payments are likely to go up, but you will likely be able to afford them.
Whether you are shopping for a new mortgage or thinking about refinancing your home, you should give some thought into a 15-year mortgage, and how it may benefit your personal finances. Contact a professional like Dave Schell at Guaranteed Rate Mortgage to learn more.