No matter how you cut it, 30 years is a very long time. Yet, even though this feels like a lifetime to some, the majority of home loans taken out in the United States are for a full 30 years, a matter that many find perplexing. So, why do people choose a 30-year mortgage in the first place? And, is 30 years too long?
The popularity of 30-year loans
Thirty-year fixed-rate mortgages are by far the most popular option, simply because the longer time frame allows for lower monthly payments.. Even though interest rates are slightly higher on a 30-year loan versus a 15-year loan, the lower payments make the 30-year loan a much more attractive product. After all, a mortgage payment is just one of the costs of owning a home — there are also utility bills, insurance and property taxes to pay. And that’s before you buy any furniture or worry about maintenance.
As a homeowner, and especially if you’re a new one, you’re probably trying to keep your costs down. You want to be able to make your payments with ease, and you don’t want to end up “house poor.” And according to a recent report from the National Association of Home Builders, the average home buyer is only living in a home for about 13 years. So, those who plan to move in the next five, 10, or 15 years might not see the need to aggressively pay off their home in the first place. They’re going to sell it anyway.
Is 30 years too long?
The answer to this question is different for everyone since each family has a unique financial situation and specific goals. Some like to make low monthly payments and save and invest the rest. Others want to become debt-free as soon as humanly possible. There really is no one-size-fits-all answer that makes sense for everyone. Fortunately, you have options. If you’re someone that doesn’t want to pay off a mortgage for the rest of your life, you’ll be able to find plenty of home loans that will fit your needs and help you meet your goals. If you’re considering a loan that’s shorter than the popular 30-year version, and don’t know where to begin, start by asking yourself these questions:
- Can you afford the monthly payment? A 10-year or 15-year loan may cost considerably more per month than its 30-year counterpart. Make sure to run the numbers with your monthly budget to ensure, definitively, that your new payment will work. You also want to verify that your credit is up to the task of buying a home in the first place. Fortunately, there are plenty of places online where you can get a free credit score.
- Do you want to go with a fixed rate or a variable rate? Many homebuyers choose a fixed-rate mortgage because they want a fixed payment and the security of knowing that they are locked in for the life of the loan. But, it doesn’t have to drag on for 30 long years. Most lenders also offer 20-year, 15-year, and even 10-year fixed-rate mortgages. In addition, sometimes more venturesome borrowers choose a loan with a variable rate, usually because of a teaser rate that can stay fixed for five, or even seven, years. If you only plan to stay in your home for a short time, a variable-rate loan may be a viable option.
- Do you need help saving? A lot of people have difficulty saving money on a regular basis and may benefit from a shorter-term mortgage that serves as a forced savings plan. After all, if you choose to go with the flexibility of a 30-year loan only to waste all of your extra income, have you really done yourself any favors? A shorter-term loan, such as a 15-year mortgage, will allow you to save by pumping up the equity in your home. And if you have trouble with overspending, a paid-off home will be much more beneficial than the alternative.
When you’re buying a home, choosing the proper financing is just part of the puzzle, but one of the most important ones. So yes, 30 years is a long time. But, is it too long to pay on your home? You certainly don’t have to pay on your home for 30 years. However, there are options if you want to.