Know your lending options.

Choosing between a 15-year mortgage or a 30-year mortgage requires a diligent review of the pros and cons of each and how they relate your individual goals/needs.  Taking the time to research this before seeking a loan package can help ensure that you plan mortgage repayment in a way that will most benefit your future financial health.  

If you are able to qualify for a 15-year mortgage, one of the major benefits is that you can get your debt eliminated more quickly with a shorter loan term. Not only that, you will save more money because borrowers can secure a lower interest rate with a shorter-term loan.  

By being able to pay down the principal balance more quickly, and should you need to refinance, you will have a lower loan-to-value ratio which will make that process easier for you. 

One of the chief benefits of homeownership is the equity you build.  This equity becomes a major asset that can then be used for a variety of situations and needs. When you sell the home the value you sell it for becomes cash in your pocket. Equity is a home is also something you can borrow against with a home equity loan or a home equity line of credit. Often, homeowners will roll their equity into their next home purchase, using it as a down payment so that they can enjoy lower mortgage payments and interest.  

15-year mortgage terms require higher payments each month, yes, but that means that you are building equity more quickly too.  Equity increases as your debt decreases. (Equity also increases if the market value of your home increases so always stay-up-to-date on current market trends.)

Being able to pay off your home more quickly can help you avoid negative equity, or being “upside down” on a house. Making larger payments means you’re establishing equity in the property more rapidly, decreasing the likelihood that you will be affected by negative equity if home values fall.

Home loans that reach a point where the loan amount is higher than the market value of your home, can lead to borrower distress. While it is almost impossible to predict when a certain housing market or demographic is going to decline, there are steps you can take to help avoid it so you make smarter, more informed financing decisions. 

The risky component with 15-year mortgages is they can leave you in a vulnerable position.  With a large portion of your budget tied up in your monthly mortgage payment, when unplanned circumstances hit, you could find yourself in a tight spot. Loss of income, medical costs, additional children etc., could change your monthly income causing strain on your budget.  A higher mortgage could also keep you from saving more for retirement.

A safer alternative may be to make additional monthly payments on a 30-year mortgage when you can. Most loans will allow you to do this without a penalty.