With continued low interest rates, more people are passing on the popular 30 year fixed rate loan in favor of a 15 year fixed rate loan. While opting for a 15 year term may be ambitious, the benefits go beyond just simply paying off the mortgage sooner, although for some that is reason enough to switch to a 15 year mortgage. Here are 4 benefits of opting for a shorter mortgage term.
The interest rate on a 15 year fixed rate loan is almost always lower than a 30 year fixed rate loan, sometimes by a considerable amount. A lower interest rate means that more of your payment will be applied to the principal instead of the interest, allowing you to pay off your mortgage sooner.
Since a 15 year term is half the time of a 30 year term, you’ll pay less interest throughout the duration of the loan. A lot less. This equates to thousands of dollars of savings over the duration of the loan for homeowners that choose a 15 year mortgage over a 30 year.
Build equity faster
With less money going towards interest every month, you’ll build equity much sooner than with a 30 year loan. Your monthly payment will be higher than with a 30 year term, but much more of your payment will go towards the principal of the loan, not the interest. Building equity also provides an opportunity to access the money by taking out a home equity line of credit, cash out refinance or a home improvement loan if the need arises.
Pay off your loan sooner
Although your payment will be higher than a 30 year mortgage, paying off your loan in 15 years will allow you to own your home free and clear. Additionally, it can help you free up a lot of your monthly income and provide a greater sense of financial freedom that allows you to invest in your future.