When it comes to buying a home the real dream of most prospective purchasers is to eventually clear the mortgage and own their home outright. Consequently at a time when everyone is particularly aware of not getting themselves into too much debt and the importance of making sure they are not encumbered with debts for too long a number of people are now looking into the possibility of shorter mortgages when they buy their homes. The reason for this is obvious. If your aim is to lower your mortgage and get debt free as quickly as possible and to own your home outright, whilst paying as little interest as possible, then shorter mortgages seem ideal. If you’re making larger payments then your principal is falling at a quicker rate and you can clear the mortgage in half the time that it might take on a thirty-year mortgage.
A fifteen-year mortgage sounds very tempting. Who wouldn’t want lower interest rates and a quicker repayment schedule? Indeed, just choosing a fifteen-year mortgage can mean you save tens of thousands of dollars. But you need to be very certain of what you are doing. Before you decide to sign up for a shorter-term mortgage you need to consider a couple of things. Firstly, remember that if you sign up to a fifteen-year deal you will lose a degree of flexibility.
Your first compromise will come when choosing your house – for a fifteen-year mortgage you’re going to need to either sign up to a larger repayment schedule, or buy a smaller house. If you have a house that you absolutely love and the choice is between the two kinds of mortgage then clearly you’re going to pay a lot more money every month if you opt for a fifteen-year deal. But you will be locked into that deal and you need to be absolutely certain you can keep up those higher repayments for a long, long time.
What happens if your job doesn’t work out, or you end up earning less money? What happens if you have children, or if you find yourself short when it comes to their school fees? If you’re worried about such scenarios (and you should be) then a thirty-year mortgage is probably for you. A thirty-year mortgage gets you a larger home for the same payment, or gets you the same home for smaller payments. If you’re planning to live there for a long time and not looking for a fast turn around or profit then clearly this is the best option, particularly if you are planning on having children. If you wish you can overpay as if you had got the fifteen-year mortgage, but revert back to the normal 30 year schedule when you need to tighten your belt.
Obviously the main advantage of a fifteen-year loan is that you will clear the mortgage quicker. If you are in a well-paid job and have significant job security and a great deal of savings then it is worth considering. The idea of owning your own home in thirty years time seems almost too far away and a bit daunting, but fifteen years sounds manageable. And the prospect of owning your own home while you are still young (ish) is also one that is worth working towards. But, and it is a very big but, if you are not absolutely certain of that kind of financial security then you should take a thirty year deal every time.
Alex is a freelance copywriter. He likes to write about cricket and jazz but these days seems to be mostly writing about finance and payday loans.