DSCR vs. No DSCR Loan: What's the Difference?
If you’ve tried acquiring financing for your investment purchase but can’t get a conventional loan or other solution, like a conventional loan, you...
Buying a home is one of the biggest financial decisions you’ll make in your life. Throughout the homebuying process, you’ll likely encounter countless terms and choices that may leave you feeling confused and overwhelmed. One of the biggest choices you’ll have to make relates to the term of your mortgage -- with 15 years and 30 years being the most common options. So here’s what you need to know about the difference between 15-year and 30-year mortgages and how you can choose the right option.
A loan term generally relates to how long you have to pay it back. For short-term loans like bridge loans, credit cards, and payday loans, your loan term can range from a year, to a month, to even a week. Mortgage loans, on the other hand, are long-term loans with loan terms that can extend over the period of decades. This is because mortgages typically deal with larger sums of money that will require a longer time period to pay back. Some common term lengths for mortgage loans include 15 years, 25 years, or 30 years.
Choosing your mortgage term is an important decision with huge financial ramifications -- so here’s what you need to know about two of the most common options -- 15-year and 30-year mortgages -- to make the best possible decision.
A 15-year mortgage is a home loan that must be repaid within 15 years. This is a fixed-rate mortgage that will maintain the same interest rate throughout the entire life of the loan. While 15 years may seem like a long time, it is substantially shorter than the other common choice of a 30-year mortgage. So why would you choose a shorter term of 15 years?
Here are some of the pros of choosing a 15-year mortgage term:
Here are some of the cons of choosing a 15-year mortgage term:
A 30-year mortgage is a home loan that must be repaid within 30 years. This is also a fixed-rate loan that will maintain the same interest rate throughout the entire life of the loan. 30 years is twice as long as a 15-year mortgage, but it’s also extremely popular with 90% of homebuyers choosing this option in 2019 according to Freddie Mac. So why would you want to be on the hook for 30 year’s worth of payments on a single asset?
Here are some of the pros of choosing a 30-year mortgage:
Here are some of the cons of choosing a 30-year mortgage:
When you’re dealing with a loan worth hundreds of thousands of dollars for your dream home, you’re going to want to make the best possible decisions to ensure that it’s a realistic and beneficial investment for your family. Your mortgage term is just one of the decisions you’re going to have to make. And while buying a home can be an overwhelming and stressful process, it doesn’t have to be if you’re armed with the knowledge and information you need to make the right decisions.
So how can you choose the best mortgage term for your unique financial scenario? While speaking with a lender will be the best way to make this determination, here are some different factors you may want to consider:
Another difference between 15-year and 30-year mortgages relates to qualifications. Since 15-year mortgages come with higher monthly payments, you’ll often need a lower debt-to-income ratio in order to qualify for that higher amount. Furthermore, the interest rate of your mortgage is largely based on your credit score, so if you have a lower credit score and are given a higher interest rate as a result, it may not be worthwhile for you to choose a shorter mortgage term that’s usually designed to save money in interest. Finally, offering a sizable down payment on the home can offset some of these qualification issues and allow you to benefit from either term option.
When it comes to qualifying and applying for a mortgage of any terms, here are some of the different factors that lenders will take into consideration:
While the major difference between 15-year and 30-year mortgages relates to the repayment time frame, there’s more to it than that. 30-year mortgages are a more popular option as they are more affordable and accessible for everyday homebuyers. In fact, around 90% of homebuyers choose this option. If you’re still stuck between these two options, you may want to consider speaking with a lender like Vaster Capital in order to get personalized advice and expertise.
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