Everyone’s dream when it comes to property is to clear their mortgage and be able to
own their home debt-free. That’s why a lot of people these days, in a climate where
getting out of debt is even more important, are looking into ways of paying off their
mortgage quicker so that they are encumbered with debts for a lot shorter period of
their lives. One such way of doing this is to opt for a shorter mortgage. The logic
is simple. If you want to clear a mortgage loan quickly, choose one with a quicker
repayment period. Your principal will fall quicker and the mortgage will be gone in
half the time. Right? Unfortunately, as with all things in life it is never quite as simple
as that.
Though it might sound extremely tempting, with lower interest rates and quicker
schedule of repayment, and might appear to save you a great deal of money,
remember that you will lose something too. Firstly, you will lose a bit of flexibility
when it comes to buying your house. If there is a certain amount that you can afford
to pay every month, then you can either spend that amount on a faster repayment
schedule over fifteen years, but end up with a smaller house, or get a bigger house on
the same repayment amount over a longer period. Clearly, if you have one house in
mind already then the difference between the two options will be that with a fifteen
year mortgage your repayments will be much larger. Will you be ok with that in a few
months or a couple of years? Remember that you are going to be tied into this deal for
many years to come.
What will happen if your current job doesn’t work out, or you end up earning less?
What about if you have more children or they want more money for college? If any
of these scenarios are even vaguely possible, then it’s probably best to choose a
twenty five or thirty year mortgage. You’ll get the same house for lower payments or
a bigger house for the same payments as a fifteen year mortgage. If you want to live
there for a long time then this is clearly the best option. Remember too that you can
always overpay as well if you do have more money and want to clear it quicker.
However, if you are in a highly paid job and are secure there, have few surprises
in mind for the next ten years and have a great deal of savings then a fifteen year
mortgage might be good for you. The idea of owning your own home outright very
quickly is appealing. But you have to be absolutely certain of that level of financial
security before you commit to the fifteen year option.
Alex is a finance blogger and journalist. He enjoys writing about sports and
jazz but these days only gets to write about insurance and remortgage rates .
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