Cross Creek West - How Long Should Your Loan Be For?

With mortgage rates dropping, now may be the time to purchase your new home in Cross Creek West. That means getting a home loan. The most common types are 15- and 30-year loans. How long should your loan be for? That depends on you.

The main difference between the loans is, of course, how long you will be making payments for. A 30-year mortgage spreads your payments out over 360 monthly installments. A 15-year mortgage condenses repayment into 180 monthly payments

There are pros and cons to each:

30-Year Mortgage

Pros:

• Lower monthly payments
• More flexibility in your monthly budget
• Ability to invest the difference in potentially higher-yielding assets

Cons:

• Higher interest rate
• Much more total interest paid over the life of the loan
• Slower equity building

15-Year Mortgage

Pros:

• Lower interest rate
• Significant savings on total interest
• Faster equity building
• Debt-free sooner

Cons:

• Higher monthly payments
• Less flexibility in monthly budget
• Potentially less ability to save/invest elsewhere

What do the pros and cons mean? Well, 15-year mortgages come with lower interest rates compared to 30-year loans. Lenders view shorter-term loans as less risky, so they're willing to offer more favorable rates. As of August 2024, the average rate for a 15-year fixed mortgage was 5.63 percent, while the 30-year fixed average was 6.5 percent.

The trade-off for a shorter loan term is higher monthly payments. With a 15-year mortgage, you're paying off the principal much faster, so each payment needs to be larger. For example, on a $300,000 loan:

• 30-year mortgage at 6.5 percent = $1,896 monthly payment
• 15-year mortgage at 5.63 percent = $2,472 monthly payment

That means you will pay less interest over the life of your loan with a 15-year loan. You will also build equity sooner.

Which loan is right for you? That depends on your financial situation and your goals. If you can afford higher monthly payments, the 15-year mortgage will save you a bundle and you will pay off your home faster, freeing up your income sooner. If you would rather have lower monthly payments and don’t mind waiting to pay off your loan, a 30-year loan might be right for you.

Keep in mind that refinancing is always possible. If interest rates decrease you can refinance at a lower rate, which may allow you to get a 15-year loan even if you started with a 30-year loan.

Visit Cross Creek West Today

Once you’ve decided on a loan (with the help of a mortgage specialist), it’s time to go house hunting. Visit our model homes and talk to our builders. You’ll be moving in before you know it.

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