For us Californians, the answer to the question, “Why should I buy a home here?”…
A 30-year mortgage has been the standard for a long time, but you may wonder if it’s the best option for you. As a mortgage broker, we have access to many different kinds of loan products, and we can get you the loan term that fits your needs best. So, what should you know about getting a 15-year or 30-year mortgage for your California home? Here are some things to think about.
Different Kinds of Mortgages
All mortgage programs have both pros and cons, and one may be a significantly better choice for you than the other. These can be complicated scenarios to fully understand, but we’re here to help you out so you feel confident that you’re making the right decision before you ever sign on the dotted line.
If you have a substantial amount of money set aside or want your property to provide a quick return on investment, a 15-year mortgage might be the option for you. You’ll pay the mortgage off faster and at a lower cost over time than you would with a 30-year loan. Because your monthly payments will be higher than with a 30-year loan, you’ll need to make sure your budget can handle the increased expense.
Pros of a 15-Year Mortgage
- Pay off the loan in half the time, freeing up your monthly budget for other things.
- Build equity in your home faster because you’re putting more towards principal each month.
- Pay less total money over the length of the loan. Because you’re borrowing the money for half the time, overall interest is much lower.
- 15-year loans come with lower interest rates than 30-year loans because they are less risky for the lender.
Cons of a 15-Year Mortgage
- Higher monthly payments and risk of default if the borrower can’t keep up with payments.
- A higher monthly payment means that your debt-to-income ratio is higher (this is your debt compared to your income each month), which means that you’ll qualify for a less-expensive home overall.
A 30-year mortgage is the most affordable way to buy a home. A 30-year mortgage has lower payments, but it takes longer to build equity under a 30-year mortgage. Just like with a 15-year loan, there are pros and cons to consider.
Pros of a 30-Year Mortgage
- Lower monthly payments that make it easier to qualify for a home loan.
- Eligibility for larger total loan amounts due to lower DTI.
- Bigger tax deductions if you deduct mortgage interest.
- Allows you to have money for other goals each month.
Cons of a 30-Year Mortgage
- You’ll pay more in interest in the long run.
- It takes longer to build equity in your home.
Choosing the Right Loan for You
So now you know the basics but probably still wonder, “Can I afford a 15-year or 30-year mortgage for my California home?” There is a lot to consider, so we can’t recommend strongly enough that you consult with an expert (like us!) on the subject. Luckily, we are staffed up with such experts who want nothing more than to help you choose the right loan for you.
Here are some of the factors to consider:
- How expensive of a home can you reasonably afford?
- What current expenses do you have, and what future expenses do you anticipate?
- Do you have enough of an emergency fund?
- Can you buy the type and size of house you want with a 15-year mortgage or will you need a 30-year mortgage?
- What matters more to you: saving money in the long run or paying less now?
- What else could be done with the money each month if you spend less on your mortgage?
- Are you looking to build equity quickly?
- Are you treating the house primarily as an investment opportunity or a long-term home for you and your family?
Whether you go with a 15-year or a 30-year mortgage, it’s something that will be a part of your life for a long time. And you want to be absolutely sure you make the right choice for your financial circumstances. Let us do what we do best and help you get into the home you want with the best possible mortgage for your California home. Just go here to get started!