Depends If You Can Afford It

Affordability, stability and flexibility are the three reasons homebuyers overwhelmingly choose a 30-year term.  The payments are lower, easier to qualify for the mortgage and they can always make additional principal contributions.

However, for those who can afford a higher payment and commit to the 15-year term, there are three additional reasons: lower mortgage interest rate, build equity faster and retire the debt sooner.

The 30-year, fixed-rate mortgage is the loan of choice for first-time buyers who are more likely to use a minimum down payment and are concerned with affordable payments.  For a more experienced buyer who doesn't mind and can qualify making larger payments, there are some advantages.

Consider a $200,000 mortgage at 30 year and 15-year terms with recent mortgage rates at 4.2% and 3.31% respectively.  The payment is $433.15 less on the 30-year term but the interest being charged is higher.  The total interest paid by the borrower if each of the loans was retired would be almost three times more for the 30-year term.

Let's look at a $300,000 mortgage with 4.41% being quoted on the 30-year and 3.84% on the 15-year.  The property taxes and insurance would be the same on either loan.  The interest rate is a little over a half a percent lower on the 15-year loan, but it also has a $691.03 higher principal and interest payment due to the shorter term.

The principal contribution on the first payment of the 30-year loan is $401.56 and it is $1,235.09 on the 15-year loan.  The mortgage is being reduced by $833.53 more which exceeds the increased payment on the 15-year by $142.50.  Interestingly, over three times more is being paid toward the principal.

Some people might suggest getting a 30-year loan and then, making the payments as if they were on a 15-year loan.  That would certainly accelerate amortization and save interest.  The real challenge is the discipline to make the payments on a consistent basis if you don't have to.  Many experts cite that one of the benefits of homeownership is a forced savings that occurs due to the amortization that is not necessarily done by renters.

Use this 30-year vs. 15-year financial app to compare mortgages in your price range.  A 15-year mortgage will be approximately half a percent cheaper in rate.  You can also check current rates at FreddieMac.com.

When It's Important...Find the Facts

Most parents don't put a lot of credence in the statements "Everyone is doing it" and "No one does that anymore."  They'll dig a little deeper and get the facts of the situation.  Interestingly, when it comes to buying a home, similar common myths continue to prevail surrounding what it takes to buy a home.

One of the most common myths is that it takes 20% down payment to get into a home.  Certainly, an 80% mortgage might have the most favorable interest rate. It won't require mortgage insurance and qualifying requirements might be a little less but there are alternatives.

"88% of all buyers financed their homes last year and consistent with previous years, younger buyers were more likely to finance their home purchase.  In 2018, the median down payment was 13% for all buyers, 7% for first-time buyers and 16% for repeat buyers." Stated by the 2018 NAR Profile of Buyers and Sellers.

• Qualified Veterans are eligible for zero down payment, 100% mortgage loans without mortgage insurance.
• Conventional loans are available with as little as 3-5% down payments.
• FHA mortgages have a 3.5% down payment.
• USDA mortgages for rural housing have two major products: one does not require a down payment and the other has a 3% down payment.  Maps, based on population numbers, are available to determine if the area you're interested in purchasing in is eligible for a USDA mortgage.

We've come to believe that facts can be instantly verified by searching on the Internet.  Unfortunately, there are a lot of things on the Internet that are questionable and certainly, that includes some information on mortgages.  Specifically, some loans are not available in certain areas and to a particular persons based on their income and credit history.

The best approach, when it comes to buying a home, is to get the facts from a knowledgeable and trusted loan professional before you begin the home search process.  Contact me at (215) 641-2500 for a recommendation.

 A website may not provide relevant information for your individual situation.  Purchasing a home is a large investment and taking the time to find out the facts is worth the effort.