How
Mortgages Work: Introduction to 30-Year Loans vs.
15-Year Loans
There
are as many types of mortgages to choose from as
there are types of houses to buy. Here you'll learn
the pros and cons of a 30-year fixed mortgage and
pros and cons of a 15-year fixed mortgage.
Lenders
offer several types of mortgages, but the most
common are fixed-rate mortgages. These loans feature
fixed rates and monthly payments, generally for
15-year and 30-year periods. They're popular because
consumers balk at the thought of their house payment
rising and falling with interest rates and whenever
rates are low, fixed-rate mortgages are very
affordable.
Fixed-rate loan borrowers face one major choice: 15
year or 30 year? For some, a 30-year loan makes more
sense. For others, a 15-year one does. Here are some
pros and cons of each.
30-Year
Fixed Rate Advantages
a.
Offers the chance to borrow money on a long-term
basis without having to worry about the interest
rates or payments changing.
b.
Monthly payments are lower than those on 15-year
loans because the interest is amortized over a
longer period.
c. Lower
monthly payments free up money that borrowers can
pour into investments that yield more than their
homes.
Higher
interest bill increases the amount consumers can
deduct at tax time, potentially reducing or
eliminating their federal income tax liabilities.
30-Year
Fixed Rate Disadvantages
a.
Borrowers build equity at a very slow pace because
payments during the first several years go largely
toward interest rather than principal.
b. The
overall interest bill is much higher because of the
long amortization term.
c. The
interest rates are higher than on 15-year loans.
15-Year
Fixed Rate Advantages
a.
Borrowers build equity much more quickly due to
shorter amortization schedules.
b.
Overall interest bills are dramatically lower than
those on longer-term loans.
c. The
interest rates are lower than 30-year loans.
15-Year Fixed Rate Disadvantages
a.
Monthly payments can be significantly higher than
those on 30-year loans.
b.
Restricts home buyers to smaller house than they
might be able to afford with longer-term loans.
Read Article:
Adjustable-Rate Mortgages (ARMS)
Also read:
4 Critical Factors In
Choosing A Phoenix Historic Homes Realtor
Adjustable-Rate
Mortgages (ARMS)
10 Reasons Why You Should
Move to Phoenix, Arizona
Also
read "What You Can Expect From Laura B."
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