loan and mortgage buttonsA 30-year mortgage has a lower monthly payment than a 15-year mortgage. Conversely, the shorter home loan has a lower interest rate than the longer mortgage.

Best of Both Worlds

According to VIP Mortgage, mortgage expert in Tempe, some borrowers seek to enjoy the best that each kind of mortgage offers. Instead of committing to 15-year home loans, they take out a longer mortgage. They then speed up the payments they make on the 30-year mortgage.

How That Works

If a 30-year home loan has no prepayment penalty, making larger payments may help the borrower make savings. One can pay off a 30-year mortgage in 15 years by simply making payments of a 15-year schedule on the long loan.

Also, the borrower doesn’t lose the flexibility of the longer mortgage. They can always fall back to making lower payments whenever necessary. Accordingly, they get the benefit of saving cash on interest. But the mortgage does not tie them to high payments.

But Does that Always Work?

Enjoying the best of both worlds sounds good, but the situation is more complicated than it sounds. For instance, few people have the discipline to follow through with the plan.

When you know you don’t have to make a large payment, it’s easy to fall back into smaller, easier monthly payment. The temptation to divert the extra payment to make other purchases is ever present.

Knowing Thyself Is Key

Are you a disciplined saver? Be honest with yourself and pick a mortgage that suits you and your financial position. If you lack the discipline but can afford to make large payments, it may be best to commit to a 15-year mortgage.

Picking a home loan really depends on a borrower’s personal circumstance. Each kind of mortgage has its advantages and disadvantages. Talking to a financial planner can help you choose the right home loan for you.

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