Would a Fifteen Year Mortgage Suit You

When it comes to buying your first house you will be looking at an affordable mortgage package, but at the same time you will want your home paid off as quickly as possible. Chances are you will go with a 30 year mortgage as opposed to a 15 year one. The monthly payments on a 15 year mortgage will be much higher that of a 30 year one and well quite frankly not many people will be able to afford them. However, when you think about it logically would it not be much better for you to have your mortgage paid off 15 years sooner.

Here are some of the main points to consider.

Fifteen years is a long time and in this time you could easily be using the money you would have been putting into your mortgage for a retirement plan. Yes we all want to hang up our working gear early but if you are still paying your mortgage in your late fifties what chance do you have to save towards retirement. Forking out an extra few hundred dollars a month for 15 years will be well worth it when you are able to retire earlier.

A fifteen year mortgage actually saves you money in the long run. Fifteen years is a massive 180 months, so if you choose the 15 year mortgage instead of the 30 year one you are saving the interest you would pay on the extra 180 months. That can add up to a huge amount of interest.

Here is an example:-

Suppose you owe £100 000 and you choose the 15 year mortgage option then you will pay back £790.79 for the 180 months provided the interests stays the same, giving you a total of £142 342 to pay back. This means you are paying £42 342 on interest over the 15 year period.

Now suppose you choose to pay your £100 000 mortgage back over 30 years then you will have a smaller monthly payment of £536.82, it sounds good so far, but wait for the interest. Over the 360 months you have a total of £193 255 to pay back giving you £93 000 to pay back. That means you are nearly paying double of what you borrowed plus you are paying an extra £51 000 just for having an extra 15 years on your mortgage.

As with everything there is another side of the coin and there are some disadvantages to a smaller mortgage term.

Firstly you may be enticed into the fact that paying your mortgage back quicker is the best option. If you qualify for the 15 year mortgage you must make sure you can afford the monthly payments. If you can only just manage then you are not leaving yourself enough cash for the unexpected and for luxuries. If you cannot afford that extra car, or a holiday each year then chances are you cannot afford to keep paying your monthly payments on your 15 year mortgage. Be sure to plan your finances before taking on a 15 year mortgage.

As for the unexpected what happens if your hours at your local job are cut, or if you have another child, or another two children, will you still be able to afford the higher payments on a 15 year mortgage? Putting yourself under financial strain is not a good idea and will impact negatively on your relationship with your other half and children. Even worse going into your overdraft or having to use credit cards for monthly bills is sending you further into debt.

A fifteen year mortgage has many benefits compared to a 30 year mortgage, such as lower amount of interest to pay back and the ability to save for retirement earlier. However the monthly payments will negatively affect your living conditions and you may struggle to afford basic necessities. If you can afford the payments on a 15 year mortgage please ensure you select this payment term. If your bank only offers you a 30 year mortgage do not be shy to ask for details of the 15 year option. However if your monthly budget sheet is telling you no, then go with the 30 year mortgage, you can always make extra payments later on.