The benefits of a 15-year mortgage

As a homebuyer, one of the biggest decisions you’ll have to make revolves around the type of financing you wish to obtain.

There’s no question you’ll need a mortgage, and there are plenty of options. The most common mortgage is the fixed-rate option because you know the payments will be the same every month for the life of the loan.

You’ll then have to decide on the number of years you’d like to have in order to pay it off. While a 30-year mortgage will give you more time and lower payments, you’ll ultimately pay more in interest because rates are higher.

When you’re considering your mortgage options, you may find the benefits of a 15-year mortgage appealing.

15 years

The shorter term itself is a benefit. With a 15-year fixed-rate mortgage, you’ll cut the number of payments you have to make in half. At first mention, it’s a great deal. But before you go rush out to your lender and sign the paperwork, there are some important differences that will affect your overall money management.

Because the number of payments will be cut in half with a 15-year loan, you’ll be paying more on a monthly basis. But on the other hand, interest rates are lower, which means you’ll save money in that area.

New homeowners.A 15-year fixed-rate mortgage provides many benefits.

Saving money and sticking to a budget

When you take out a 15-year fixed-rate mortgage, you stand to save thousands of dollars. This money can then be reinvested into other important areas in your life, such as your child’s college education or a retirement account.

But in order to pay off the 15-year mortgage, you’ll need to adhere to your budget. Straying from it and splurging on personal items could result unintended budget shortfalls.

Before you commit to the mortgage, lay out your monthly income, including bills, groceries and other important expenses. Don’t forget to factor in the costs associated with owning a home, such as insurance and property taxes.

From there, you will be able to obtain a clearer picture as to whether you can realistically afford the higher payments in half the time of the more conventional 30-year loan.

Hypothetically, if you were to take out a 30-year mortgage, you might try to pay it off early, assuming there are no prepayment penalties. However, because you’re not obligated to do so, you might stray from your payment plans and instead make smaller payments.

By opting for the 15-year mortgage, you have to remain disciplined, otherwise you risk defaulting. Yet the discipline can ultimately be a good thing because you’ll further refine your money management skills.

Retirement plans can benefit

Planning for major life happenings takes a toll on your finances and may leave your budget stretched thin. Retirement planning is important because you want to ensure you have enough income saved up and invested that will last the rest of your life once you stop working.

Planning for retirement is something that is meant to start at the earliest possible time, but once you reach a certain age, it becomes even more significant.

Luckily, because you’ll only need 15 years to pay off the mortgage, you’ll have even more time to build up your retirement portfolio to ensure you are properly prepared for the future.

Home equity builds faster

Every home builds equity over time. Equity is essentially the difference between the fair market value of your home and the amount you still owe on the mortgage.

“A 15-year mortgage helps you build equity faster.”

A 15-year mortgage, therefore, helps you build equity faster than if you had chosen a loan with 30-year repayment terms. Equity can come in handy if down the line you anticipate the need for major renovation projects, or you need a large influx of cash to help make big purchases. Equity can also be used to help cover your child’s college education, or part of it.

The faster equity builds, the more secure a financial position you’ll find yourself in because emergencies may arise where that value of your home will come in handy, such as expensive medical bills.

There is nothing wrong with taking out a 30-year mortgage. But there are a different set of benefits if you decide to go with the 15-year option. As a homeowner, it’s another decision you’ll have to make in a list of many choices.


Beginning the home buying journey the very first time can be a bit intimidating, but it doesn’t have to be. Here’s an overview of the home buying process in five steps.

Contact a Bank Midwest mortgage banker to help answer any questions you may have!


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