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Explaining How 30 and 15 Year Home Loans Differ

At Goodwyn, we want everyone to experience the joy of owning their own home. And for most, the pathway to homeownership includes obtaining a home loan. When it comes to taking out a home loan, one of the most important decisions you'll make is choosing the term of your loan. The two most common loan terms are 30-year and 15-year loans. Here are some of the key differences between these two types of loans to help you make an informed decision.

Loan Term

The most obvious difference between a 30-year and 15-year home loan is the length of the term. As the name suggests, a 30-year loan gives you 30 years to repay the loan, while a 15-year loan gives you only 15 years. This means that your monthly payments will be higher for a 15-year loan than for a 30-year loan, but you'll pay off the loan much faster. But that is an extremely simplified explanation. There is a little more to their differences.

Interest Rates

In general, 15-year loans have lower interest rates than 30-year loans. This is because lenders view 15-year loans as less risky than longer-term loans. However, the difference in interest rates between 15-year and 30-year loans can vary depending on the current market conditions, your credit score, and other factors.

Monthly Payments

Probably the biggest factor for people when deciding between 15 and 30-year loans is the monthly payment. Because a 30-year loan has a longer term, your monthly payments will be lower than for a 15-year loan. This can be beneficial if you're on a tight budget and need to keep your monthly expenses as low as possible. However, keep in mind that you'll be paying off the loan for twice as long, so you'll end up paying more in interest over the life of the loan.

Total Interest Paid

As we touched on in the point above, because a 30-year loan has a longer term, you'll end up paying more in interest over the life of the loan than you would with a 15-year loan. This can add up to tens of thousands of dollars over the course of the loan. If you're trying to save money over the long term, a 15-year loan can be a better option.

Equity

Equity is the difference between the value of your home and the amount you owe on your mortgage. Because a 15-year loan has a shorter term, you'll build equity in your home faster than you would with a 30-year loan. This can be beneficial if you're planning to sell your home in the future or want to take out a home equity loan.

At the end of the day, choosing between a 30-year and 15-year home loan depends on your financial situation and goals. If you want lower monthly payments and are willing to pay more in interest over the long term, a 30-year loan might be the best option. If you want to pay off your loan faster and save money on interest, a 15-year loan might be the better choice. Whatever you decide, Goodwyn Building will be here when you are ready to look at available homes. We would love to show you around!

By Goodwyn Building 4-20-2023