15 Year Loan v. 30 Year Loan

By: Gregg Hall

Stress abounds when considering a new home. We look at the roof and check the shingles. We ask about the plumbing, the heating, and the air conditioning. And we stress out over the offer, wondering if we're offering enough or too much based on what the house is really worth. And then once we finally settle on a place and the bank approves us as good lendees, we have that ever daunting decision to make: how long do I want to be indebted to this institution. Homeowners generally have two options: 15 or 30 years.

Since many of us are looking at homes later in life, we have to consider our options carefully. Do we want to tackle a 15 year loan with higher payments, or do we want the easy payments that a 30 year loan offers with the risk of continuing our mortgage payments into retirement. Oh the decisions!

Before deciding which direction to head, you should first consider the interest rate. Ask about it and make sure that it doesn't change over time. You want a fixed rate. Sometimes the lender's offer seems too good to be true, it usually is. Avoid anything but the fixed rate. The fixed rate means that you'll have the same interest rate for the duration of your loan, regardless of what the economy does.

When looking at our current home, my wife and I considered the 15 year fixed rate loans available at the time. We wanted our house paid off as soon as possible, but we also knew that we had to be able to afford the steep payments that come with a 15 year mortgage.

We considered a 30 year loan and compared it with the 15 year loan as well. Obviously we wanted to get rid of the loan as soon as possible, but if we couldn't afford the 15 year loan payments, it really wouldn't work for us. So after considerable discussion, we chose the 30 year loan. Lots of details helped us make this decision.

In the process of buying the home, we learned that we were expecting a child. Because my wife wanted to stay home with the baby, we could no longer rely on her salary and because the 15 year loan offered such high payments, we knew right away that we shouldn't take it for risk of not being able to meet our monthly obligation.

We didn't just rest on our laurels with the 30 year loan, though. We decided to make extra payments throughout the year with the hope of having the loan paid off years before it came due. Anyone can do this with a little bit of discipline and a lot of desire.
Obviously we wanted to own our home in 15 years, but sometimes life just doesn't allow you to get what you want. So in the mean time, we're doing what we can to make it work, and in the end, we're both satisfied with how things turned out.

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