What to consider when deciding between a 15-year and 30-year home loan?

Both options come with their own advantages and disadvantages, and deciding which is right requires careful consideration of one’s financial situation, long-term goals, and other financial commitments. This article takes a closer look at the differences between a 15-year and a 30-year home loan.

What is a 15-year home loan?

A 15-year loan has a maximum home loan tenure of 15 years. This means the borrower must repay the entire loan within 15 years. The monthly payments on a 15-year loan are typically higher than those on a 30-year loan because the loan must be paid off in a shorter period. However, because the loan term is shorter, the overall interest paid is typically lower than on longer loans.

Advantages of a 15-year home loan

Lower home loan maximum tenure
The lower the term, the sooner one can settle the loan and get complete ownership of the property. This can be particularly suitable for people who wish to sell their house eventually.

Lower interest paid
15-year home loan rates may be lower as the interest is paid over a short period, resulting in higher overall savings.

Disadvantages of a 15-year home loan

Higher monthly payments
The main disadvantage of a 15-year home loan is that the monthly payments are higher than those on a 30-year loan. This can make it more difficult to budget for other expenses.

Possible negligence towards other financial commitments
With less disposable income each month, it becomes difficult to focus on additional savings and investments. While one may have created a financial asset with a house, other goals like retirement, children’s education, travel, etc., may be overlooked.

What is a 30-year home loan?

A 30-year loan has a maximum home loan tenure of 30 years. The monthly payments on a 30-year loan are typically lower than those on a 15-year loan because the loan is paid over a more extended period. However, the total interest paid can be higher as the settlement period is longer.

Advantages of a 30-year home loan

Lower 30-year mortgage rates
One of the most significant advantages of a 30-year home loan is that the monthly payments are lower than those on a 15-year loan. This can make it easier to budget for other expenses, such as fuel, groceries, entertainment, travel, etc. One may also be able to pay equal attention to other financial goals and cater to financial emergencies.

Possibility of buying a bigger home
With lower monthly payments, one may be able to afford a more expensive or bigger home than with a 30-year home loan.

Disadvantages of a 30-year home loan

Longer settlement period
30 years can be an extended part of one’s life. It can take years before one can gain complete ownership of the house.

High total interest paid
One of the main disadvantages of a 30-year home loan is that the total interest paid over the life of the loan is significantly higher than that of a 15-year loan. Even if the interest rate on a 30-year loan is lower than that of a 15-year loan, one may end up paying more in interest over the life of the loan.

May hamper other goals
A 30-year loan may be a disadvantage for those close to their retirement age and coincide with other financial goals, such as saving for children’s college education.

What to choose?

The right home loan maximum tenure option depends on one’s financial situation and long-term goals. It is essential to consider factors such as one’s income, expenses, and future plans, as well as the advantages and disadvantages of each option, to make an informed decision that works for the individual and their family.

Conclusion

30-year fixed mortgage rates are likely to be different than 15-year loans. While it can be challenging to choose between both options, it can help to calculate the tenure from EMIs. Most home loan providers offer online calculators that can enable one to understand the exact financial repercussions of the loan in the long run and make an informed decision.

It may also be advised to take help from a financial advisor, if necessary, as a home loan can be a lengthy undertaking, and it is better to be sure.

Disclaimer- This article is based on the information publicly available for general use. We do not claim any responsibility regarding the genuineness of the same. The information provided herein does not, and is not intended to, constitute legal advice; instead, it is for general informational purposes only. We expressly disclaim any liability, which may arise due to any decision taken by any person/s basis the article hereof. Readers should obtain separate advice with respect to any particular information provided herein.