How to Choose Between a 15-Year and 30-Year Mortgage

A person's mortgage can have a big impact on their quality of life while they're living in their home. A mortgage that is too expensive can put the homeowner in a precarious situation, leading them to bankruptcy or mortgage default. Meanwhile, home buyers who choose not to pay off their mortgage in a timely fashion may find themselves paying more interest over time. These tips can help buyers decide whether or not a 15-year or 30-year mortgage is right for them.

For informational purposes only. Always consult with a licensed mortgage professional before proceeding with any real estate transaction.

What's the Difference Between a 15-Year and 30-Year Fixed-Rate Mortgage?

The most obvious difference between a 15-year mortgage and a 30-year mortgage is the payoff time; one is paid off literally twice as fast as the other. The 30-year mortgage is the most popular type of mortgage available in the United States.

In addition to the differences in payoff time, the primary difference between a 15-year and 30-year mortgage is the size of the monthly payments and the interest rate. 15-year fixed-rate mortgages have a lower interest rate but larger payments for the life of the loan. A 30-year fixed mortgage will have higher interest rates but lower payments, because the payments are spread out over such a long period of time.

Which One is Better?

Although the payments are higher for a 15-year mortgage, the homeowner pays less for the mortgage over time. Unfortunately, the larger monthly payment may make it more difficult for the homeowner to qualify for the loan. This is because the amount of the loan is factored into the buyer's debt-to-income ratio.

DTI: What You Need to Know

Debt-to-income ratio is the amount of money that a person pays in debts per month versus the amount of money that the person makes. If the person pays $200 in debts per month and makes $2,000 per month, their debt-to-income ratio is 10%. Home buyers may not be able to take out a mortgage if the payment for the mortgage will put their debt-to-income ratio over a certain amount (usually 43 percent). This is why many home buyers may not be able to qualify for a 15-year mortgage.

How Can You Decide What's Right for You?

Culver City home buyers who are going to need a mortgage can find out which type of mortgage is right for them by budgeting their money and working with a lender. Home buyers who want a 15-year mortgage but who are unable to qualify because of their debt-to-income ratio may be able to pay down debts and then qualify.

Often home buyers need reserves of cash to pay for the down payment, closing costs, moving expenses and other home-buying related costs. Buyers who choose to pay down debt in order to qualify for a 15-year fixed rate mortgage must ensure that they will still have enough cash to pay for their home and other expenses.

Contact Your Lender for More Information

If you're trying to decide whether or not a 15-year or 30-year mortgage is right for you, contact a reputable mortgage lender in your area. Your mortgage lender can go over your budget and discuss your options. Your lender can calculate your debt-to-income ratio and tell you how much of a mortgage you'll be qualified to get based on your current finances.

For informational purposes only. Always consult with a licensed mortgage professional before proceeding with any real estate transaction.