Many homeowners find themselves comparing 30-year vs. fifteen-year mortgages when refinancing their current mortgage loans. There are actually many different factors to consider when comparing these two very different time periods for the duration of the loan. It is a good idea to consider your individual financial goals and circumstances, as well as the potential pitfalls before making a final decision on which mortgage loan to purchase. Here are several tips that will help you make an informed decision on which type of loan to apply with the best financial results.
To compare 30-year vs. fifteen-year mortgages, it is important to first understand the difference between a mortgage term and a mortgage loan term. A mortgage term is how long the mortgage will be. For example, if you take out a thirty-year fixed rate mortgage and refinance to a fifteen-year term, this will be a thirty-year loan. A fifteen-year mortgage is simply the amount of time left on the loan. These terms can be helpful when comparing different 30-year vs. fifteen-year mortgage options, because they allow for more flexibility and a longer repayment period.
Another way to compare both 30-year vs. fifteen-year mortgages is to compare the interest rates associated with the loans. In general, adjustable rate mortgages (ARM) tend to offer borrowers a longer repayment period at fixed interest rates. Interest rates on adjustable rate mortgages are often affected by economic indicators such as inflation. The Federal Reserve Bank of America specifically warned last month that interest rates are likely to rise as rates are raised in response to increasing inflation.
When comparing 30-year vs. fifteen-year fixed home loans, another factor to consider is financing options. Some homeowners prefer to finance their home through a mortgage lender that specializes in subprime lending, or private investors. These investors purchase homes for a lower price and then fix them up so that they will qualify for a mortgage loan. In many cases, these investors are able to provide cash financing for your down payment, which can significantly reduce the overall costs of the home purchase. If you do not have enough saved up to make a down payment, however, you will still probably find the cost of the home loans attractive.
You should also research whether the particular mortgage company or lender offers prepayment options. Many mortgage lenders offer prepayment plans to their customers, which allow you to pay off your mortgage loan much sooner than usual. The prepayment option can significantly reduce the cost of your mortgage, especially if you can prepay for two or more years. You may not always be able to find a lender who offers prepayment options, however.
Another thing to consider when shopping for refinanced mortgages is your monthly payment and interest rates. While your interest rates may change substantially between now and the time of your refinance, you can help yourself by shopping for a fixed mortgage. Fixed mortgages are loans that are for an extended period of time, such as thirty years. If you choose a fixed mortgage rather than an adjustable-rate loan, you will have a locked-in interest rate, meaning that your monthly payment and interest rate will not change for the duration of the loan.
For people who cannot handle short-term financial risk, 30-year fixed home loans may be a good option. You will not need to worry about making adjustments to your budget to accommodate any changes in your paycheck. These mortgages are usually offered by more established financial lenders, and there are many advantages to choosing this type of loan over shorter-term loans.
One advantage of the longer mortgage term is that you may save money over the life of the loan by avoiding annual fees that would be assessed but are not included in the closing costs. Another advantage of the longer loan term is that you can lock in a lower monthly payment at lower interest rates. When comparing 30-year vs. 15-year mortgages, make sure to consider these factors. If you are planning to refinance your home, the best choice may be a fifteen-year fixed mortgage, provided that you make all of your payments on time and do not rack up any fees. If you can afford a thirty-year loan term, it may be possible to save money over the long run.