Beautifying Your Financial Picture

Four Signs A 15-Year Mortgage Is Right For You

by Darryl Nguyen

Most people who buy homes take out a 30-year mortgage; this has just become the standard in the United States. However, many lenders also offer 15-year mortgages. Because they are paid over a shorter time period, they result in a smaller amount of interest paid over the life of the loan. A 15-year mortgage is not for everyone, but here are four signs it may be right for you.

You have a steady, predictable income.

When you take out a 15-year mortgage, your monthly payments will be a bit higher than with a 30-year mortgage. If you have a steady job and a predictable income, this should not be a big deal for you. However, if there is a chance you may lose your job or your income may decrease in the coming years, you might be better off with a 30-year mortgage so that you can have an easier time coming up with the payment if times get tough.

You're buying less home than you can afford.

If you are buying a home that's just about the max that you can afford, a 15-year mortgage is going to result in monthly payments that are challenging to your budget. You might not have a lot left over for groceries, vacations, and other wants and needs. On the other hand, if you could afford more home than you're buying, then you can likely take out a 15-year mortgage and still have plenty of wiggle room. For instance, if you earn $200,000 a year and are buying an inexpensive, $100,000 home, your payments will be low compared to your income and you might as well pay over a 15-year period to save on interest.

You are nearing retirement.

If you are going to be retiring in less than 20 years, you probably want to opt for a 15-year mortgage rather than a 30-year mortgage. This way, you will not have a mortgage payment to worry about when you reach retirement age. You may be able to retire a bit earlier as a result. 

You hate debt.

There are some people who prefer to leverage their expenses as much as possible, and others who prefer to avoid debt whenever possible. If you fall into the "debt hating" group, then a 15-year mortgage will enable you to get out of mortgage debt sooner. You could even make extra payments and pay the loan off early if you can afford to do so!