There’s a lot to like about a 15-year mortgage: It typically has a lower rate than a 30-year loan and can be paid off in half the time.
But there’s one big downside to this type of loan: You’re locked into a higher monthly payment.
That’s right. The monthly payment on a 15-year mortgage can be significantly higher than what you would pay on a 30-year loan. How much higher? Think 30 to 40 percent. And when you take out a 15-year mortgage, you’re locked into those higher payments over the life of the loan. That’s why some homeowners are choosing to stick to a 30-year loan and make extra principal payments on their own.
How do you make extra payments? When you take out a 30-year loan, simply add a higher principal payment into your monthly mortgage. If you stick with the extra payments – assuming that they are equivalent to what you would have paid with a 15-year loan – you’ll pay off your home in about half the time.
But here’s the advantage: If you hit hard financial times, you can scale back the extra principal payments and go back to a lower monthly payment. Sound good? Check out this interesting article to learn more about this alternative to taking out a 15-year home loan.