Is a 15 Year Mortgage a Good Idea

Some homeowners love the idea of a 15 year mortgage. They don’t like the idea of taking 30 years to buy their home so they opt for the 15 year option so they can be mortgage-free in less than 2 decades instead of 3 full ones. 

But is a 15 year mortgage a good idea for you? There are pros and cons to it, so let’s look through those.

Pros of a 15 Year Mortgage

The first and most obvious advantage to this type of mortgage is that you’re done paying it in just 15 years. To put that in perspective, that means if you buy the home when you’re 35, you’re done by 50! If you had done a 30 year mortgage, you wouldn’t pay it off until you’re 65 and (probably) thinking about retirement. 

By becoming debt-free at a younger age, you free up some cash that you could then invest in other things. 

• If you’re behind on retirement savings, you can put it there. 
• Travel and see the world
• If you have enough saved for retirement, maybe you can retire early
• Pay for your children’s college or wedding
• Besides just being debt-free earlier, there are other benefits to getting a 15 year loan. Your interest rate will likely be lower compared to a similar 30 year mortgage. Not only that, but over the lifetime of the loan you’ll pay much, much less in interest. 

For example, let’s say you got a mortgage of $280,000. With a 30 year mortgage and 3.63% interest rate, you’d pay about $180,000 in interest over the course of those 30 years. 

If you got a 15 year mortgage, you may be able to get an interest rate of about 3.13% and you’d pay $71K in interest over the span of 15 years. 

That’s exciting, right? So that’s the answer – it always makes sense to get a 15 year mortgage?

…not necessarily. There are a few other things you should think about. 

Cons to a 15 Year Mortgage

The first thing to mention here is the higher monthly mortgage payment. When you get a 15 year loan, you can expect the monthly payment to be about 50% higher than a 30 year loan. 

In the example above, your monthly payment would’ve been about $1,278 with the 30 year option and $1,951 with the second option. That’s a big difference!

That higher payment can lead to stress and tension if something happens to your income. And as we all know after just coming out of 2020, bad things happen and sometimes people lose their jobs or income gets drastically lowered. 

Not to mention other things you can use that extra money for. If you had a 30 year mortgage, your lower monthly payment would let you have extra cash on hand to do other things:

• Grow your own small business
• Invest in something like stocks or real estate
• Travel the world
• Spend on your favorite hobby
• Build up an emergency savings fund
• So essentially the two biggest cons to a 15 year mortgage are having to pay that higher cost and the opportunity costs from doing so. 

Conclusion

Is a 15 year mortgage a good idea? For some people, yes. If you want to be debt-free ASAP, it might make sense for you. Just keep in mind the costs that come with it, such as less money available to invest in things like an IRA for retirement. If you’d like help talking and thinking through your options, send us an email at hello@rosegate.com.