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What's the Difference Between 15 vs. 30 Year Mortgage - Local Records Office

The business "Local Records Office" explains the difference between mortgages fees in Norwalk, CA.

The 30-year mortgage

The 30-year mortgage is one of the most popular options when it comes to borrowing money to buy a home. I think the most appealing part of a 30-year mortgage is the fact that you can get a lower monthly payment and be able to afford more house than you could with a shorter-term loan.

However, a bigger house is not always what it seems to be. Something to consider when buying a bigger house is that it costs more to maintain.

So even though your mortgage payment is smaller when you buy a bigger home on a 30-year note, you will pay more in property taxes and more for monthly maintenance of that home. For that reason, it’s important to factor those considerations into the equation when purchasing a home.

Also, a bigger home often means bigger repair bills and more time spent on keeping up the home. There are more windows to wash, more floors to vacuum and more walls to paint.

A bigger home not only means more money but more time as well.

For this reason, it’s important not to fall for the allure of a bigger home simply because the payments on a 30-year mortgage for that home are affordable for your budget.

Consider all of the costs of owning a larger home before choosing a longer mortgage term simply for the sake of buying up.

A 15-year mortgage

The 15-year mortgage is not as popular as the 30-year mortgage, primarily because your monthly payment is significantly higher than on a 30-year mortgage.

Also, we live in the age of “how big of payment can I afford?” While the payment amount should be affordable, it shouldn’t be the only determining factor of purchase – especially one of the largest you’ll make such as a home.

What most people fail to realize is that choosing a 15-year mortgage term over a 30-year mortgage term results in a long-term monetary savings benefit that can easily run in the tens of thousands of dollars.

For example, look at this chart from The chart compares the payment differences and the interest paid differences if you were to borrow $250,000 for a home.

The Federal Reserve Board is on track to raise interest rates as soon as today. It’s a move that will mean higher mortgage rates, higher monthly payments, and reduced purchasing power for new borrowers.

Homebuyers, who haven’t seen an interest rate increase in nearly 10 years, maybe tempted by lower-rate 15-year mortgages. But do the advantages of a 15-year mortgage outweigh the costs? The answer depends partly on where you live.

We’ve crunched the numbers for the largest U.S. metros, and found that:

With the median US household income, a 30-year mortgage allows homebuyers to purchase 46% more house, but a 15-year mortgage provides triple the paid equity in just 5 years.

Homebuyers in areas where prices have a history of rising will benefit greatly from faster equity-building with a 15-year mortgage.

Buyers in areas with historically slow-growing to flat housing prices will benefit less from shorter-term mortgages and potentially more from the borrowing power of a 30-year loan.

The Tradeoffs Between 30- and 15-year Mortgages

In general, 30-year mortgages have three advantages:

Monthly payments are lower
Borrowing power is higher
Tax benefits are greater
The primary advantage of a 30-year mortgage is lower monthly payments.

On the median-valued U.S. home, a 30-year mortgage comes with a payment that is $320, or 27%, lower than a 15-year mortgage. Lower payments also mean that a borrower’s debt-to-income (DTI) ratio is lower than a 15–year loan.

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