Types of Home Mortgages: 15-Year Fast Payoff Home Mortgage

The 15-Year Home Loan Versus the 30-Year Home Loan

The differences between the 30-year and 15-year mortgage is staggering in many ways, and there are advantages and disadvantages to both. In examining the 15-year fast payoff home mortgage, you should think about why you are considering it.

Benefits of the 15-Year Home Loan

Keep in mind that the 15-year mortgage is not designed to give the homeowner financial wiggle room. If a borrower needs greater flexibility in finances and may have trouble meeting the demands of a 15-year loan, she should consider the 30-year instead.

Borrowers who take out 15-year mortgages are paying down their principal loan amount much faster than someone with a 30-year loan. The payoff for these borrowers is that they are saving a great deal of money long term. They are also building equity in their homes much faster than the 30-year borrowers. Many who opt for this type of mortgage early in their experience as homeowners may find their homes paid off long before they retire, or can move into an upgraded home much sooner than they would have otherwise.

Many with 30-year loans who thought they originally couldn’t afford the payments on the fast payoff mortgage are making additional payments on the principal every month. They are beginning to see that building equity and paying down their principal is an important part of building their personal wealth. The additional money helps reduce interest payment as well. You will also own your property free and clear in half the time.

Drawbacks to the 15-Year Home Loan

One drawback to the 15-year fast payoff mortgage is that it requires a higher income to qualify for the loan. The shortcut to figuring out if you can afford the payment is to calculate 28% of your gross income and comparing this to your potential house payments. However, don’t miscalculate the interest rate when you’re figuring this out—interest rates are usually lower for 15-year mortgages.

Another drawback is that you won’t get the tax deductions on the interest you pay. However, this is not much of a drawback, considering the total you will save in interest will far exceed anything you would have received in deductions.

A Final Look at the 15-Year Home Loan

Remember that before you sign any loan papers, compare your total interest payments between the 30-year and the 15-year fast payoff mortgage, and ask yourself if you would be able to save that kind of money—which will likely be more than half the interest—any other way.