The difference between a 15 and 30 year home loan is honestly simple- you pay a 15 year loan off quicker. Of course, the payments on the 15 year loan will consequently be higher than on the 30 year mortgage.
By the same token, you will make equity in your home a lot quicker with the shorter term mortgage, but of course you have to pay more to do this. Once a 15 year home loan is paid down, there is still plenty of equity in the house and a new mortgage can be negotiated.
This is an individual choice, since some people prefer to have lower monthly payments, while some like to build equity quicker. If it is not a question of affordability; is the 15 year mortgage automatically a better bet, or could you do something else with the money? With a thirty year mortgage, you could pay off the mortgage earlier by increasing payments when you could. The benefits are not exactly the same as choosing the 15 year home loan in the first place, but you will build equity quicker than only paying the required payments. This is an option that appeals to a lot of people, since they feel that they can make higher payments when it is right for them, but keep the lower payments when they prefer to.
Of course, many people believe they can increase wealth by other means. Let us say that the monthly mortgage on a $100,000, 30 year loan at 7% is $665, but on a 15 year loan at 6.75% (the rate is always higher for the longer term) is $885. You theoretically need to pick an alternative investment for the difference of $220. With the 30 year mortgage, you would have only repaid $5,868 in principal, as opposed to $22,933 with the 15 year mortgage. If you reckon you can do better putting this money in the stock market, or another investment such as a child’s college fund, you may build wealth as well. Judgment and needs can vary.
But the 30 year mortgage has flexibility over a 15 year mortgage. Those people who have the discipline to invest or save the $220 saved on the mortgage, would probably do perfectly fine. Too many people, but, do not possess this kind of discipline, and the funds would be wasted; these kinds of people are better off being forced to build equity through the use of a shorter term loan.
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