Given the large amount of funds that you may borrow to finance a home, you should make every effort to obtain a mortgage loan that has a low interest rate. The lower the interest rate on the mortgage, the smaller the monthly mortgage payment. Even a slight increase (such as 0.5%) in the interest rate increases your monthly mortgage payment.
The 15-year mortgage has become very popular as an alternative to the 30-year mortgage.
The interest rate charged on 15 year and 30 year fixed-rate mortgages is typically related to other long-term interest rates (such as the 30 years Treasury bond rate) at the time that the mortgage is created. For this reason, homeowners seek a fixed-rate mortgage when they believe that interest rates will rise in the future.
Impact of the Mortgage Maturity on the Monthly Payment.
The maturity of the mortgage indicates how long you will take to complete your financing payments and pay off the mortgage. At that point, you own the home outright. The advantage of a 15 years mortgage is that you will have paid off your mortgage after 15 years, whereas a 30 years mortgage requires payments for an additional 15 years. Monthly payments on a 15 years mortgage are typically higher, but you pay less interest over the life of the loan and build equity at a faster pace.
The advantage of a 30 years mortgage is that you have smaller monthly payments for a given mortgage loan amount than you would for a 15 years mortgage. The monthly payments may be more affordable, and you may have more liquidity.
Some financial institutions now offer 30 years and 35 years maturities on mortgage loans. The obvious advantage on mortgages with long maturities is that it makes the mortgage more affordable because monthly payments are lower. However, you build equity in the home more slowly. In general, homeowners prefer shorter maturities as long as they can afford the monthly payments.