Home Decision: 30 Year Fixed vs. 15 Year Fixed Mortgage
December 6, 2018
What type of mortgage is best?
Today we have a guest post from Rob Wicklander with Neighborhood Loans to answer this commonly asked question.
Whether my client is buying their very first home or they’ve been down this road a dozen times before,
the question I’m encountering more than ever is the decision between a 30 year fixed or 15 year fixed
mortgage. We don’t see many (or any) market indicators that an adjustable rate mortgage (ARM) would
be a smart play for anyone looking to stay in their home for more than a couple years, so homebuyers
want the peace of mind that comes with a fixed rate product.
While one answer clearly won’t apply to all, there are some questions you should ask yourself when
deciding on which product is the best fit for you.
When I ask the vast majority of homebuyers what they’re hoping to accomplish when choosing between
a 30 year or 15 year, the overwhelming answer is “RATE”! There’s no question we’ve all been spoiled for
the better part of a decade with mortgage rates that are all but certain to never return again but don’t
be so quick to grab that 15 year fixed mortgage just because the rate is slightly more attractive.
Here are the three key question I run down with my clients while assisting them in their ultimate
1.) How long do you plan on staying in this home?
Short term durations usually don’t warrant a shorter mortgage term. Your money can work harder for
you elsewhere than paying down the principle of a loan.
If you plan on this being a forever home or you view this as a long term investment, a 15 year note to
eliminate excess interest might make sense for you.
2.) Are you comfortable with the payment increase to a 15 year note?
This is the most important question you need to really soul search on. As obvious as it may seem, I run
into quite a bit of sticker shock when quoting a 15 year fixed mortgage compared to the 30 year option.
The reduction in rate between these two options have the slimmest margins in history (on average, less
than a half of a percent). You’d be paying the mortgage off in half the time so the payment is much
higher. Don’t set yourself up to be “house poor” or struggle to make the mortgage payment because of
3.) What other expenses do you have and how could that picture change in 5
This might be the toughest question… Knowing your current expenses should be easy enough but
predicting life’s curveballs is an ability none of us possess. Unattached? dual income? retirement within
reach? Maybe a 15 year is the right fit for you. Starting a career? children on the horizon? tuition
looming? A 30 year with a more manageable payment sounds like a better fit.
Each potential homebuyer has their own unique scenario but ask yourself these questions and consult
with your loan officer before making a financial decision that impacts you each and every month.