A 15 year mortgage is great, but so is a 30 year. I own a mortgage company, and I know the mathematical realities.
- 15 year mortgages have lower rates.
- 15 year mortgages pay less interest over the life of the loan.
Yet I have a 30-year mortgage. Why?
CASH FLOW
The amount of interest you pay over the life of the loan is important, but it’s not the only factor to consider. The total payment you have compared to the amount of income you have is most important. A lower term (15 years vs 30 years) means the monthly payment on your mortgage will be higher. This higher payment could impact your ability to save for the future, live comfortably in your prefered lifestyle, or worse–prevent you from buying the home altogether.
I understand the argument here to buy a lower priced home. Some would say you should not buy a home at all if you are unable to afford it on a 15 year payment. There is a problem with this, especially today. The graph below shows the Housing Affordability Index over the last 10 years. As you can see, it is increasing.
This means it is getting tougher to purchase a home based on affordability alone. Waiting to buy until you can comfortably afford a 15 year mortgage payment could cost you.
BUILD WEALTH QUICKER
The average American has over 70% of their wealth in the home they live in. The average dollar amount of wealth that people have in their home is over $300,000! How? Home values increase. This graph demonstrates that you can take any 10 year period in history and see home values were higher at the end of that 10 year period.
It doesn’t matter when you buy the home. You could have bought the home at the very worst time during the last housing recession, and 10 years later, your home value would still be higher. This means when a home is purchased, its natural home value increase has a positive impact on your net worth. The quicker you are able to purchase a home, the faster you are able to start this wealth building.
Although a 15 year mortgage does have less interest paid over the life of the loan, waiting will likely have a negative impact on your wealth building journey. For an inside look on this check out this video of someone who did wait to buy.
Again,15 year fixed mortgages are great! But they are not the end all be all. A 30 year fixed mortgage is also wonderful! So much so that I have one because it helps with cash flow and allows me to build wealth faster.
If you are interested in talking to one of our home loan advisors on what rates are on a 15 year or 30 year mortgage, you can schedule an appointment using the link below.
