There is a necessity to sit down and calculate the cost with your spouse if you are planning to work out a home loan for the next 15 to 30 years. There are many borrowers and successful homeowners who claim that a 15 year term for a home loan is the perfect choice. But can you afford a shorter payment term since you are going to pay more as compared to the scenario when payments are spread thinner over 30 years? This is a consideration that must be given more attention. It will surely affect your life for the next fifteen years. Perhaps you can take a 15 year term if you can afford the payment. It is shorter and it’s the most logical way if you plan to retire after that term.
Analyze The Advantages
There are definitely some advantages if you take a 15 year term for your mortgage agreement. Some of these are the following.
- You can rid yourself of the loan in half the time you need for a 30 year term.
- A 15 year term will definitely cost you less in interest.
- If you pay in 15 years, you would worry less when in retirement.
- You will build equity on your property faster, and, in fifteen years, it’s all yours already.
Take Note of the Disadvantages
While giving these advantages your attention in your final consideration, you must not forget the disadvantages that a 15 year term loan will bring. You should remember that within that period, you are tied down to a fixed rate interest that cannot be reduced if the interest in the market is extremely low. It is possible to use it but at a significant cost that you will have to shoulder for refinancing. Another disadvantage is the principal and interest that you will have to pay because of the shorter term.
Other Factors to Consider
It is easy to give up and take a 15 year term if you can afford the payment, but can you really do it? You must be honest when saying yes to this decision. Perhaps doing some soul searching first and finding the right answers to these questions would be your best bet.
Do I have sufficient savings just in case?
Maybe today you may say that you have the ability to make higher payments required under the 15 year term. But what if something unexpected happens in the next few years like losing your job? Worse still, what if your ability to earn is impaired and you cannot work anymore? Can your savings in the bank sustain your needs? If you think of having a second mortgage on your equity as fallback, do you think the bank will lend you money in such a situation? If you can answer this question and remove the cloud of doubts that is hanging above, then you can go for it.
Do you have a savings goal for your retirement?
Fifteen years from now, you must have your own home to enjoy your retirement years. It could probably coincide with that dream if you have really planned for it. By that time you will have already had your own nest, can you assure yourself that you will have saved the money for your retirement expenses without approaching the bank to grant you a remortgage loan? Remember that by that time, your earning potential is no longer attractive as before. Lending institutions will not come knocking on your door to approve the loan you may want.
The perfect way to build that retirement fund is to save while you are working. It is therefore equally important that while you are fully committed to take a 15 year term if you can afford the payment, also include a savings plan simultaneously with your increased payments. See to it that you put in a sufficient amount into your retirement fund first before paying your monthly amortization.
Another consideration that you must keep focused is the costs of closing a 15 year term deal. Charges on loan servicing and other closing expenses can run up to thousands of dollars which could cause a big dent to your finances.