When you shop for a mortgage today you can choose among mortgages of different lengths.
30-year fixed-rate mortgages. With these mortgages you know what your payments will be over the long-term. In essence, a fixed-rate mortgage is a form of insurance against future interest-rate increases. You’ll pay for this insurance in the form of higher interest rates, so you shouldn’t pay for it if you don’t need it. However, if you don’t expect your earnings to increase much over the years, choose a fixed-rate mortgage
15-year fixed-rate mortgages. These mortgages are paid off in half the time of a 30-year loan so each monthly payment will be higher. By paying the extra amount, you’ll avoid 15 years of interest payments, for a huge savings. You’ll probably get a slightly lower interest rate, for even more savings.
Insight: Most people like the comfort of not having a mortgage. If you can afford the monthly payments, take a 15-year loan to get your mortgage paid down rapidly. Try to negotiate a loan with no points and low closing costs and be ready to refinance when rates drop.
An alternative strategy is to choose a 30-year mortgage and pay it off at the same rate as a 15-year mortgage: $950 per month, in the above example. You can cut back to the 30-year payment ($750 per month) if you have cash flow problems yet not jeopardize your credit rating or your home ownership.
