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With interest rates rising in light of inflation, some would-be homeowners are eyeing 15-year mortgages in lieu of the traditional 30-year variety to build equity quicker. But one industry veteran urges caution against the option unless one is financially prepared to take that step.

“It’s kind of like anything else when it comes to mortgages,” said Rebecca Richardson (pictured), mortgage loan originator for UMortgage. “It’s a balance of what’s available and the priority of somebody’s goals. In my mind, so much of it is education of what’s out there. It’s great to have a 15-year loan, good to pay it off early. Don’t pay the banks all that interest!”

Yet in choosing a 15-year note, homeowners – especially first-time ones – should consider other financial requirements: “If you’re a first-time homebuyer, you’re in uncharted waters,” Richardson said. “I try to educate for flexibility because you can still have a 30-year loan, making extra principal. But if you have a job loss, or maybe you want to qualify for an investment property, you’ll qualify for a 30-year. But if you have a 15-year payment, that reduces some of your borrowing power.”

Richardson suggested she is all about advising people on taking on either a 15-year or a 30-year mortgage, but at the end of the day it depends on what their needs are: “It’s just more advocating for understanding your options and not just looking at the rate, basically,” she said. “Look beyond the rate to understand the way your mortgage fits into a larger financial picture.”

She noted the difference in monthly mortgage payments depending on the loan term is significant between the two options: “Off the top of my head – and it really depends on what the interest rate is – it’s a 30% to 40% increase in payment,” she said.

A shorter-term loan would also require a larger down payment, she noted. “Some would say bigger is better,” she said. “But when it comes to your down payment, is putting down a large down payment the best way to buy a home?”

Booking.com

Pros and cons of a 15-year mortgage

 

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