Choosing Between a 15-Year or 30-Year Mortgage

August 26, 2019
Last updated:
March 22, 2022
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There’s a lot that goes into buying a house besides deciding on the neighborhood you want to live in and the type of house you want to buy. If you’re thinking of buying a house soon in Washington, Oregon, Colorado, or Idaho, odds are you need a mortgage. And when it comes to mortgages, there are plenty of things you need to think about, including the amortization period.

What is an amortization period, exactly? Simply put, this is the entire length of your mortgage. It’s defined from the time you start paying your first mortgage payment to the last payment made that finally covers the entire loan amount due.

Put another way, the amortization period represents the time required to pay off the entire mortgage loan amount. When you first take out a mortgage, you’ll be given a due date of when the mortgage is due in full. And this is your amortization period.

You’ll have options on the length of the amortization period, depending on your financial health and what your lender is able to offer you. But generally speaking, borrowers will typically have a choice between a longer amortization period or a shorter one. More specifically, you may have the option to choose between a 15-year and 30-year amortization period.

The question is, which one should you go with?

The Argument For a 15-Year Amortization Period

With both a 15- or 30-year amortization period, there are pros and cons that you need to get familiar with, which will help you ultimately decide which route to take. Here are some reasons why a shorter amortization period like this may be something you should consider:

Your loan will be paid off faster.

Obviously, 15 years will end a lot sooner than 30. That means you’ll be able to pay off your mortgage in 15 years much faster. By doing so, you’ll be mortgage-free a lot earlier than you would be with a 30-year amortization period, which can free up money that can be used for any number of purposes, including funding your retirement.

You can build more equity faster.

The more money you put towards your mortgage, the more equity you’ll be building. And with larger monthly payments, you’ll be funding this equity much faster.

Having more equity is a good thing for many reasons. For instance, you may be able to use that equity in the form of a home equity loan or a HELOC (home equity line of credit) that can be used for home improvement projects or other large expenses.

Plus, you’ll own more in your Seattle or Portland home than what you would owe a lot quicker. This is very important, especially considering the fact that you’d be less likely to be underwater on your mortgage if you’re ever in a position to have to sell your home in the future.

You’ll have an easier time refinancing.

When or if the time comes to refinance your mortgage, you may find it easier to get approved with better rates because your loan-to-value ratio will be smaller. A loan-to-value ratio – or LTV – represents your outstanding loan amount relative to the value of your Denver or Boise home.

This ratio is important to lenders because it will tell them how risky you are as a borrower, as well as how risky the loan will be. The lower the LTV, the better, as a lower LTV ratio suggests less risk because the assets behind the loan are not as likely to fully pay down the loan.

On the other hand, a higher LTV represents less of a risk for the lender, which will increase the odds of refinancing approval at a much lower rate. But by putting more into your mortgage every month with a shorter amortization period, you can decrease your LTV with more equity in the home.

You’ll pay a lot less in interest.

The faster you pay off your mortgage, the less you’ll end up paying in interest over the life of the loan. With every mortgage payment you make, there’s an interest portion to it.

By getting rid of those mortgage payments sooner rather than later, you can stop paying all that interest that comes with each payment and therefore save yourself tens of thousands of dollars over the long run.

This is a huge benefit to a 15-year amortization period. The shorter amount of time that you borrow, the less interest you’ll pay.

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The Argument For a 30-Year Amortization Period

While there are certainly advantages to a 15-year amortization period, there are also some drawbacks that you won’t have with a 30-year amortization period. Here are some reasons why a longer amortization may be best for a mortgage in Washington, Oregon, Colorado, or Oregon:

Your monthly payments will be lower

For most borrowers, a smaller bill every month is much more feasible to deal with. Americans have all sorts of bills to pay every month, and adding another one to the mix in the form of a mortgage payment can be a bit much to handle. And when you cram in all that principal into fewer payments as you would with a shorter amortization period, it may prove to be difficult.

But with a longer amortization period stretched out over 30 years, your payments will be much lower. You’ll have a much longer amount of time to pay off the entire loan amount, which means each payment will be smaller. This can make budgeting much easier and staying on top of your bills more manageable.

Free up more money for other expenses

If much of your income is dedicated to your mortgage, you’ll have less money every month to do other things, such as saving up for retirement or even building a financial cushion to fall back on. With a 30-year amortization period, less money paid out means more money left in your pocket every month to be put towards other expenses that you might have. The last thing you want to do is incur bad debt because of the higher payment that comes with a 15 year fixed mortgage.

Increase the amount you can invest

When considering the average rate of return on investing in the stock market or rental properties, it can be argued that paying down your mortgage is a bad idea when compared to the alternative. Over a period of 10, 20 or 30 years investing the savings from the lower payment of a 30 year fixed will increase your net worth more than paying extra principal payments towards your mortgage. Many financial experts agree that paying down your mortgage should be the last thing you do after maximizing your retirement account, emergency savings and other investments that align with your long-term financial goals.

An exception to this would be if you aren’t disciplined enough to invest the savings from your lower mortgage payment. If you are inclined to spend before you invest going with a 15 year fixed could act as a form of forced savings. While not ideal it is a better financial decision than using the money to buy depreciating assets.

Need a mortgage?

If you’re in the market to secure a mortgage to buy a home in WA, ID, CO, or OR, call Sammamish Mortgage. We’ve been in the business of supplying mortgages to buyers in the Pacific Northwest since 1992, and would be happy to help you get the mortgage you need to buy a home. Contact us today for an instant rate quote.

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