Choosing a 15-year mortgage can save you tens of thousands of dollars over the life of your loan. In this post, we’ll cover the primary advantages and disadvantages of opting for a 15-year term for your next home loan.

Advantage: Lower total interest payments

Paying off your mortgage in half the time means you’ll be paying interest for half as many years. This can lead to significant savings depending on the size of your loan. Owning your home outright in just 15 years is also a great step towards building wealth and increasing your net worth.

Disadvantage: Higher monthly payment

Naturally, a 15-year mortgage requires a higher monthly payment, which may or may not work for your budget. No matter what your income level, a larger mortgage payment will always leave less available cash for savings and other priorities.

Advantage: Lower interest rate

Lenders usually give lower interest rates to borrowers who qualify for a 15-year term.

Disadvantage: Can be harder to qualify

A 15-year mortgage will raise your debt-to-income ratio, due to the higher monthly payment. This means you will qualify for a lower loan amount compared to a 30-year term or may risk not being approved at all.

Advantage: Build equity faster

A larger mortgage payment pays off more principal each month, which helps you build equity faster.

Disadvantage: Higher risk

A larger mortgage payment can present a challenge if your financial situation changes. It’s important to remember that you’ll be locked into higher payments for the life of your loan, so if you were to lose your job or face some other financial hardship, you could miss payments or be forced to refinance at a bad time.

Planning ahead

You should consider your future financial obligations when considering which mortgage will be best for you. Perhaps you have kids going to college, are planning getting married, need a new car or simply have other goals such as saving for travel or retirement.

It’s a good idea to discuss your long-term goals with an experienced mortgage broker before making a final decision. Both a 15-year and a 30-year mortgage can be great. It all depends on your personal financial situation.

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