Low interest rates are a must when looking to finance a home, and one way to guarantee lower rates is choosing to enact a 15-year fixed-rate mortgage. However, this type of mortgage also comes with the burden of an increased monthly payment amount. So, how do you decide which option is right for you?
By choosing a 15-year-fixed-rate mortgage, you are faced with pros 4and cons. Aside from paying off your Chicago new home’s mortgage in half the time you normally would, there are many upsides to this type of mortgage. There are lower interest rates, which mean paying less over the span of the loan, and you have a fixed monthly payment, making it easier to create a sustainable budget. By choosing this type of mortgage you may also build up home equity more rapidly.
In contrast, although you have a lower interest rate, the payment you make each month will be larger. This is necessary in order to pay off the same sum of money in half of the time.
If you have plans to stay in the work force for the next 15 years, a 15-year-fixed mortgage will ideally enable you to be mortgage-free by retirement. Also, if things should change before it is paid off, your higher equity should allow you more options when refinancing.
A Good Faith Estimate (GFE) for both mortgage options is good to receive when planning out your home’s financing. If you find the 15-year rate is out of your range, perhaps you can do the 30-year option and make larger payments toward the principle when you have the extra funds available. If not- a 15-year plan might be worthwhile.