Mortgage Rates

Is A 15 or 30 Year Fixed Mortgage Right For Me?

Is A 15 or 30 Year Fixed Mortgage Right For Me? 5184 3456 Casey

You have applied for a mortgage and are now faced with a question: Should you get a 15 year mortgage or a 30 year one? How are they different and what benefits would they have for you?

Each length of mortgage has its own pros and cons that are dependent on your current circumstances, like where you are in your life and your finances. Here is what you need to know about the differences between a 15 and 30 year fixed mortgage:

Before You Begin, Consider Your Current Financial Situation

Before you take the plunge, please consider your current financial situation before applying for a loan:

  • How much are you paid each month?
  • What are your monthly debts and bills?
  • What is your credit score?
  • What are your savings and other investments?

A mortgage calculator can help you get an idea of how much you can afford per month, but always seek the help of a professional financial advisor and mortgage loan officer. They will help you understand your finances and find the right mortgage for you.

Always budget responsibly before taking on large financial burdens like a mortgage.

30 Year Mortgage: Lower Payments

If you opt for a 30 year mortgage, you will have lower monthly payments, but obviously a longer pay-off period. This option is a good choice if you plan on being in your home long term, for example, if you are a young family just starting out.

In fact, 30 year loans are considered the most popular. According to Investopedia, in 2015 more than 2/3 of all mortgage applications and 86% of all purchase applications were 30 year.

15 Year Mortgage: Less Interest

There is less interest on a 15 year mortgage, but your monthly payments will be larger than a 30 year. A 15 year mortgage can benefit you if you are close to retirement and do not want the responsibility of a mortgage in retirement.

30 Year Mortgage: More Investment In Personal Savings

Because your monthly mortgage payments are lower, a 30 year mortgage allows for more investment in your personal savings, as well as being able to pay off debts like student loans and credit cards.

By having a financial cushion from saving up, you can invest in other opportunities like home improvement or remain secure if your financial situation changes due to hardship like unemployment or illness.

15 Year Mortgage: Build Equity Faster

Since you will be paying more per month and in less time with a 15 year mortgage, you will have the advantage of building up your home’s equity faster than a 30 year mortgage. Then, you can use that home equity as you need, be it a home improvement or paying for college.

Ready To Purchase A Home?

Homebuying 101: Prequalification Versus Preapproval

Homebuying 101: Prequalification Versus Preapproval 2000 1333 Casey

For some, the home buying process may be a “walk in the park,” given the situation that you’ve walked through this park a few times. For others—and probably, most—the home buying process and the terms that come with it can be extremely confusing.

Let’s take the terms prequalification and preapproval, as an example. Many unsuspecting home buyers may assume them to be interchangeable, when—in fact—they’re anything but. If you’re among the number of residential consumers that are baffled by the difference between the two terms, have no fear. We’re here to help.

Prequalification: The 10,000-Foot Perspective

If you’re in the market to purchase a home, the first step of the mortgage application process is the prequalification. This provides the borrower with an estimate of how much house they can afford and a projection of how much a lender might be willing to lend.

Keep in mind, this is only an estimate based on a simple calculation, considering basic information such as monthly income and monthly debt, as reported by the borrower(s).

Since the numbers used are based on borrower estimates and no credit report is requested, a borrower’s social security number should never be requested. This is extremely important to keep in mind because if your social security number is being requested at this stage, then all indications point to your credit report being accessed—in which case, your lender is probably moving forward with a preapproval.

It should be noted that a prequalification will not carry as much significance when house shopping as a preapproval would because of the lack of information and level of diligence performed to generate a prequalification estimate.

Preapproval: The Nitty-Gritty Truth

For those home buyers ready to have a more thorough analysis on their financial situation and their home affordability situation, a preapproval may  be in order.  Since a approvals is based on verbal information provided by the borrower and information received from a borrower’s credit report, a more accurate and realistic affordability picture can be discerned. With a preapproval letter in hand , a borrower can shop with confidence, knowing exactly how much a lender is willing to lend them, allowing borrowers to seek out homes at, or below, a given price point.

Find out what documents you will need to complete your mortgage loan application.

Before you begin working with a lender, find out if they provide a prequalification or a preapproval. Since a prequalification is a quick estimate, borrowers with a preapproval letter may receive more favorable consideration when sellers are comparing more sound offers from multiple, competing homebuyers. It’s always good to ask your lender for advice on how to improve your chances when qualifying for a loan.