Benefits of a 15-Year Loan

Benefits of a 15-year loan

Taking out a mortgage? One of the most important factors of a loan is its duration. Many people choose the traditional 30-year mortgage, but there’s a growing interest in the 15-year.

In this article, we’ll go over some common reasons the 15-year mortgage is gaining popularity and if it’s for you.

Faster Homeownership

You can own the property outright faster. While it’s obvious to note that 15 years is half of 30, it also shows less time to pay off your mortgage. This means each year, you build significantly more equity than the 30-year counterpart. 

One downside of this option is that your monthly mortgage will be much higher. This is something you’ll have to figure out in terms of your income and what’s the best option.

Lower Interest Rates

Typically, 15-year loans come with lower interest rates.  Lenders consider 15-year loans less risky because they check income requirements matched to the monthly mortgage. The bank sees high-income earners as less risky and thus more able to pay off the property. 

In addition, building equity faster on the loan means less interest paid over its duration. This can be appealing to first-time homebuyers because it’s less interest paid in total.

Build Equity Quickly

Equity represents the portion of your property that you truly own. With a 15-year loan, as you make consistent payments, your equity will grow at a faster pace. This increase in equity can be advantageous if you plan to refinance or take out a home equity loan in the future.

Escape Debt Sooner

A 15-year mortgage can be an excellent choice for those who want to retire their debt before retirement. By eliminating your mortgage sooner, you’ll free up more of your monthly income for other expenses or investments, providing greater financial freedom during your retirement years.

Protection Against Inflation

With a 15-year loan, you are grandfathered into a fixed interest rate for the entirety of the mortgage. This will give you a hedge against inflation. While rents and living costs increase year-over-year, this will not be the case for your mortgage payments. This can be especially appealing in cities where prices are always rising.

When your finances are consistent, it’s easier to map out your future.

Improved Financial Discipline

Opting for a 15-year loan requires a higher monthly payment compared to a 30-year mortgage. This can be seen as a benefit as it forces borrowers to practice financial discipline. It encourages a more careful approach to budgeting and spending, promoting a financially responsible lifestyle.

Lower Total Cost (15-year loan)

While the 15-year monthly payments are much higher, you’re paying less overall. This is due to the equity-interest split each year. It boils down to the longer you have the loan in your name, the more interest you will accrue. However, if you commit to a lower rate, the bank counts on you to make all the payments. Your credit will be affected negatively if you are late on a payment or cannot make it.  This should further outline the importance of choosing the right mortgage.

Reduced Stress and Peace of Mind

With a 15-year mortgage, you’ll experience the peace of mind that comes with knowing your home will be entirely paid off in a relatively short period. This reduced debt burden can alleviate financial stress and provide a sense of security for you and your family.

Freedom to Invest Sooner

You’ll have more financial freedom by paying off your mortgage in 15 years. When your loan is paid off, you’ll be able to diversify your income through other investments.  Your home is considered one of your biggest assets. And finishing your payments means you can build up another asset with your leftover income.  

This can be appealing to many young homeowners. It can be put into various trusts to save for retirement or education expenses for your children.

In conclusion, a 15-year loan offers numerous benefits that can make it an attractive option for homeowners. From faster homeownership and significant interest savings to improved financial discipline and reduced stress, the advantages of a 15-year loan are compelling.

However, it’s important to consider your future financial expenses. If you have big payments planned for the future, like a wedding or kids, you must plan for that.

Planning based on your expected average salary or annual income is easiest.  If you want to build up your home’s equity faster and can pay off the higher monthly payments, then you should consider the 15-year loan.

Want to learn more about loans? Check out our blog about picking the right loan!


Have a question? Email Brenda