Buying a new home provokes all kinds of questions, many of which pertain to financing. Questions like: Which mortgage lender should I seek financing from? How much will be expected to put towards a down payment? What interest rates will I be able to qualify for? How long should I pay off my mortgage? Truth is, all of these questions can have more than one right answer, so don’t stress yourself out too much.
At Hayden Homes, we want to make sure that you secure the financing option that’s right for you and your situation. In addition to talking to a lender, to help you make a good decision, consider these basic differences between 15 and 30-year mortgages.
The 30-year mortgage is the most standard mortgage type throughout the country. Via this model, homeowners make payments on their mortgage loan over the course of 30 years. Because payments are spread out over a 30-year term period, the monthly amount owed on the loan is significantly less than it would be for a 15-year mortgage. However, because the loan extends for twice the length of a 15-year mortgage, the amount of interest paid on the loan is understandably more – and that’s the trade off.
For example, consider a homeowner who purchases a $300,000 home, putting $60,000 (20 percent) down and taking out a mortgage loan for $240,000. With an interest rate of 5%, and factoring in an average value for homeowners’ insurance and property taxes, the homeowner can expect to pay approximately $1,663 in mortgage payments, per month, for 30 years. Over the course of the loan’s life, the amount of interest accrued and paid would be approximately $223,813. To play with some of these numbers, view our mortgage calculator.
On the other hand, if the homeowner decides to do a 15-year mortgage instead, their monthly payments would jump up to approximately $2,272. However, while monthly payments are more, over the course of the loan’s life, the homeowner will pay approximately $101,622 in interest.
While the 15-year mortgage may seem ideal on the surface – obviously, any homeowner wants to minimize the amount of money they owe over time – there are some drawbacks, too. First of all, it is harder to get approved for the 15-year mortgage; lenders want to see that homeowners can safely afford higher monthly payments, and that the payments won’t be too large of a portion of homeowners’ monthly earnings. Further, while paying more on your home now may save money over time, it can put a financial burden on your family now. Higher monthly payments may create unwanted financial pressure.
In short, if you can afford the payments associated with a shorter mortgage term comfortably, this may be the best option for you. If you can’t, then a 30-year mortgage is still a great option, and the option that the majority of homeowners in America choose. Keep in mind that you can always refinance at a later date, if doing so makes sense. Also, keep in mind that you can always elect to pay more of your mortgage when the funds are there. This requires more discipline since putting “extra” down each month on your mortgage principal isn’t required.
If you’re looking to buy a brand new home in the Northwest, or if you just have questions, we can help. Contact Hayden Homes today to learn more.
Note – While Hayden Homes has been building new homes for 30 years, we are not experts on home loans. In order to truly understand and find out which home loan is right for you, we recommend talking to a lender. The numbers in this article are an estimate and may not reflect the exact amount that you would pay for principle, interest, or monthly payments. Please consult your lending officer for any lending needs and additional questions regarding getting approved for a loan to buy a new home.