4 Reasons 15 Year Mortgages Are Better

15 year mortgages are an excellent alternative to the traditional 30 year mortgages for anyone who wants to save money. A 15 year mortgage will usually cost a few hundred more per month, but will save tens of thousands of dollars over the life of the loan. If you are in the market for a mortgage, comparing a 15 year mortgage to a 30 year mortgage will prove huge savings and may be more affordable than you may have thought.

Reason 1: Savings

Interest is paid over the course of 30 years and is compounded, taking out a 15 year mortgage will practically cut the costs in half. You will save thousands if you choose a 15 year mortgage over a 30 year mortgage. For example, if you are buying a house for $200,000 at a 5 percent rate,  a 15 year mortgage will save you about $120,000 over a 30 year mortgage.

If you get a 15 year loan, you will pay $84,000 in interest over the life of the loan. A 30 year loan, on the other hand, requires $200,000 in interest charges.

Reason #2: Lower Interest Rate

A 15 year mortgage offers a lower interest rate than a 30 year mortgage. Usually it is at least .5 percent lower. On that same $200,000 mortgage, you would save $50 a month with the lower interest rate. The difference between a 5 percent rate and a 5.5 percent rate would equal about $20,000. In this way, you are not only saving by cutting the years of interest from the loan, but also by lowering the interest rate and monthly payment.

Reason 3: Forced Savings

A 15 year mortgage is like an automated savings account. You will save money by choosing this product and you have no choice but to make the payment. Many people take out  a 30 year mortgage and say they will pay extra each month to pay it off in 15 years. But something always comes up. The car needs repairs, you have a vacation planned or the roof needs replaced. There are always reasons why you can't pay extra on the mortgage. A 15 year mortgage is forced where you don't have the option of not paying.

Reason 4: Security

Once you are able to pay off your mortgage in half the time, you can rest easy knowing you own your home, not the bank. If you lose your job, become disabled or want to retire early, you know your house is paid for and no one can take that away. Also, you build equity faster with a 15 year mortgage. If an emergency arises, you do have equity you can withdraw. Or, if interest rates are low, it may be a better financial move to take equity to pay for college instead of higher rate student loans.