The 30-Year Mortgage

In 1954, the Federal Housing Administration widely brought on the 30-year-mortgage as the go-to for Americans. In fact, most would-be homebuyers hardly even consider any other options. This begs the question… Why? When purchasing a home, here are some signs that something other than a 30-year might be more beneficial to your financial situation. 

A 30-year-mortgage has become the standard mostly for predictability. With this kind of loan, payments feel lower because they’re made over the course of 30 years. Plus, interest and the principal are fixed so there’s no shock when your bill comes in the mail. However, there are instances where perhaps other types of loans make more sense. 

It’s Not Your Forever Home

The general rule of thumb is that you need at least three years of homeownership in order to recoup your expenses before reselling. Given the housing market in the past few years, experts are stretching that estimate to more like 5 years. If you intend on moving on after a year or two, perhaps consider renting. 

Down Payments

With housing prices going up, that means the old standard of a 20% down payment becomes less and less attainable. In most cases, qualifying for a traditional 30-year-mortgage requires this type of down payment. It may not be feasible for the average American. After all, 20% on a $300,000 home is $60,000. 

Other options, like an adjustable-rate mortgage usually need only a 10% down payment. Or, an FHA Loan asks borrowers for as little as 3.5%. 

Seeking Equity

If your hope is to build home equity quickly, then a 30-year-mortgage also doesn’t make a lot of sense. A 15-year-loan means higher monthly payments but offers two significant benefits: you build home equity much faster (because, ipso facto, you’re paying the principal down faster), and the lower interest rates on 15-years means you’ll save a ton of money on interest over the life of the loan. 

Don’t assume a 30-year-mortgage is the only way to buy a home. If you have questions, speak to your real estate professional or loan officer!