Thirty years. That’s how long most people elect for a mortgage term. Fifteen years. That’s how long most people should buy based on. What they can afford to pay off in fifteen years, making monthly payments amortized on a fifteen year schedule. This is not what the mortgage industry will recommend, however, because by the time a 30 year mortgage is “paid off” you could have bought and paid for the house again.
There are several reasons people should consider a 15 instead of a 30:
- With a 30-year, yes, the payments are lower because the payments are made over a longer period of time, but this may result in purchasing a home that is at higher sale price than than the person really can afford only because the payment is lower than if they had chosen a 15 year mortgage.
- While the payments on a 15-year are higher, it is less time in debt if they are paid on time. For example, if a person has kids and buy a home on a 15 year mortgage when children are little, the house will be paid off before or close to the time they are ready to move out. This leaves the homeowner with lots of options to fund your retirement, vacations, college plans, etc.
- While a person might “lock in” that rate on a 30 year… its 30 years of payments… and unless someone is extremely disciplined, spending will generally expand to take the extra money that otherwise could have been applied to the 15 year mortgage payment.