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Taking A Look At 15, 20 and 30 Year Mortgages

Posted on February 26, 2020 by Chris

Purchasing a home is a very exciting time. It is a milestone step, if it’s your first and only home anyway. But many people who want to buy a house are in the dark when it comes to how the financing works. Many questions come with buying a home. How to refinance your home in Colorado? What are the pluses and minuses to a 30-year mortgage?

Here we try to answer some of those questions.

What Is A Mortgage? 

We’ve all heard the term mortgage before. Whether it’s from our parents, television or our friends who have one. What is a mortgage, though? A mortgage, called a deed of trust in certain states, is a legally binding contract that guarantees repayment of a home loan in a certain length of time. If the loan and interest are not paid back in full in that period, the mortgage states that the lender, usually a bank, can take the property from you. 

Here we will explore three mortgages with different repayment periods attached to them. Each term length has its pros and cons. Without further ado, here they are. 

15 Year Mortgage 

This type of mortgage is meant to be repaid in 15 years. The benefits of a mortgage of this length include a shorter path to homeownership, equity is accrued faster and over the long run, you pay less money because the interest rate is lower. 

The negatives are for a 15-year mortgage are worth noting. Because the term of the loan is shorter, your monthly payment is considerably more per month. Related to that, more of your money is tied up in home equity, meaning less for other investments, retirement, vacations, and education. 

20 Year Mortgage

The two most common mortgages are, by far, 30-year and 15-year. But there’s also a 20-year mortgage that combines some of the positives of the more common types. For example, like the 15-year mortgage, there is a faster path to owning a home compared to the 30-year mortgage. Interest rates also tend to be lower as well compared to the 30-year. At the same time, it frees up money for other things compared to the 15-year mortgage.

Just as the benefits are combined, so are the drawbacks. The upfront investment is more significant than a 30 year while the path to homeownership takes longer than the 15-year. 

30 Year Mortgage

The 30-year mortgage is the most popular of its kind. You can claim a huge tax break based on the interest payments for this kind of loan. It’s a fixed-rate loan, so you’ll be able to pay the same about every month and you’ll have more cash available to take a European vacation, send the kids to college and save for retirement. 

The downside to this type is that over the 30 years, you’ll end up spending a lot more of your money due to the interest over that time. The interest is higher because the risk the lender is taking is higher over a longer time. Your equity will grow much slower and there is a chance to borrow more than you can afford due to lower initial investment.

Do Your Research Before Making a Decision

Knowing the ins and outs of each type of the most common mortgages helps you get a handle on what option will work best for you and your family. 

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