Are 15-Year Mortgages Better Than 30-Year Mortgages?

Mortgage rates in the United States are nearing an all-time low, yet mortgage brokers notice that their clients are opting for shorter mortgage periods way more often than they once did. Below, we look at the skinny on this mortgage type.

Why the 15 year loan?

15 year mortgage periods are currently looking like the best deal on the market- if you can afford the repayments. A 15 year loan always carries a higher repayment rate, obviously, as the capital has to be repaid over a shorter period, but you often make killer savings on the interest due to the lessened effects of the compound interest factor over the same time. Additionally, mortgage brokers advise that 15 year mortgages almost always come at rates lower than the longer term loan, which sweetens the deal significantly.

The fact that most of your repayment, despite being larger, is actually paying down capital, as opposed to financing the banks interest, is huge. It’s an aggressive mortgage strategy that will save you literal hundreds of thousands of dollars over time. Those same dollars can be put to better use, say mortgage brokers, in a college fund or a nice holiday- or even financing your second home.

Will my mortgage broker help me get a 15 year loan?

You will, of course, have to qualify for a 15 year home loan to reap these benefits. Despite the fact that you save a huge amount long-term, the higher repayments for a 15 year loan are often a turn-off for buyers who need a lower monthly payment. Debt-to-income requirements of the lenders can also put a spanner in the works.

What can I do if I can’t qualify?

If you feel you can afford the payment- usually around 50% higher then the 30 year option’s payment- but the bank won’t give you the shorter term, you can in fact bluff the system a little, mortgage brokers advise. Refinance to the 30 year mortgage to take advantage of current rates, get the best rate you possibly can, and then pay that 50% extra over and above normal payments each month…you will shorten your loan period considerably, you remain in control of your repayment schedule and you will still reap the benefits.

But that’s a thirty year loan?                                                                                     

Many mortgage brokers like mention that people often forget they don’t have to stick to the bank’s terms. Yes, you do have to make the rate they set you every month as repayment- but there’s nothing saying you can’t pay in more every month. Banks don’t particularly like to advise people of this, as it eats significantly into the juicy compound interest they have set aside for themselves. However, even a little extra paid in every month can be enough to significantly tip the scales in your favour and cut down dramatically on the interest you pay over time.

Reducing your interest paid so that more of your money goes into addressing your capital is the best advice mortgage brokers can give you for shortening your mortgage period and keeping your costs lower.

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