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Considering the massive cost of a home in Washington state, most people can’t pay for a property outright in cash, so they typically finance it with a mortgage loan. 30-year mortgages are more conventional and are common among borrowers, but they also come with a significant interest price tag.
That’s because the term is very long, which means more interest will end up being paid over the life of the loan. On the other hand, shorter mortgage terms typically mean much less interest paid overall, though monthly payments will have to be higher in order to pay off the loan amount in less time.
People who have a stable career and the income to afford larger payments, or who are nearing retirement, may want to consider taking out a 15-year mortgage in an effort to save on all that interest. Here are some reasons to consider one.
If you’re looking to save a great deal of money in interest on your Washington state mortgage, then a 15-year mortgage might be right for you. The total interest paid on a 30-year loan can be nearly as much as the principal. While it can be difficult to see the bigger picture when facing a mortgage payment that will be a bit higher, consider this: Paying off a loan in 15 years versus 30 years will save tens of thousands of dollars in interest, and in some cases, as much as $100,000.
Interest rates on 15-year mortgages are also typically lower than other longer-term home loans, which provides additional mortgage interest savings.
Equity refers to how much of your Seattle home you’ve already paid for plus what it appreciates in additional value over time. If your home is worth $250,000 and you owe $190,000 on your loan, you have $60,000 in equity. Basically, equity refers to what you own outright.
Since more money is going toward the loan principal rather than interest on a 15-year loan, you build equity faster, which is beneficial for numerous reasons. It lowers your loan-to-value ratio and may improve your chances of getting a home equity loan, which can be used for large expenses.
Instead of having a housing payment later in life, that money is freed up for retirement or other expenses with a shorter-term mortgage.
If retirement is on the horizon for you in the next 10-20 years, ditching your mortgage payment sooner rather than later is wise. Once you are on a limited income, you will want as few expenses as possible. Plus, having the option of a Bellevue home equity loan for emergencies is attractive.
While there are many reasons why you should consider a 15-year fixed-rate mortgage, there are a few reasons why you shouldn’t, including the following.
The only way to pay off your mortgage faster and save money in interest over the life of the loan is to make much higher mortgage payments. With a shorter-term mortgage like a 15-year fixed-rate mortgage, the same loan amount will need to be paid, but within a much shorter time frame. Even though you may be able to become mortgage-free and pay off your Washington state home sooner, it undoubtedly means higher mortgage payments.
Since a lot more of your money is being dedicated to paying your mortgage, there’s less money available every month for other expenses or expenditures that you might want or have. If money is a bit tight, you could end up becoming “house poor” and pouring all of your hard-earned income into your home with a little leftover for anything else. In this case, perhaps a 30-year fixed-rate mortgage on your Kirkland home might make more sense for you and make things more financially feasible.
If you reach the end of the mortgage term and need to extend it for whatever reason, you will have to renew your mortgage if you’re unable to pay it off. If that’s the case, you will have to renew at a new mortgage rate and terms, which might not be as favorable as they were with your original mortgage contract. As such, there is a slight chance of instability in this case.
There are several excellent reasons to get a 15-year mortgage. Run the numbers with your trusted home mortgage advisor and decide what makes the most sense for you.
Sammamish Mortgage is a local, family-owned company based in Bellevue, Washington. We have been serving the entire state since 1992, as well as the broader Pacific Northwest region that includes Idaho, Colorado, and Oregon. We offer a wide variety of mortgage programs and products with flexible qualification criteria. Please contact us if you have mortgage-related questions.
Summary: In a previous blog post, we discussed some of the different types of mortgage loans available to home buyers and homeowners in Washington. Today, we’ll zero in on the key distinctions between 15-year and 30-year fixed-rate mortgage products. Here’s…