Is a 15 Year Mortgage the Right Choice?
So, right off the bat you must be thinking – what on earth can 15 year mortgages and tapioca pudding possibly have in common? And you’re right – at first glance there isn’t much, but as you dig deeper the similarities will surprise you.
Tapioca pudding is a sweet pudding desert thickened by man-made tapioca pearls. Tapioca does not occur naturally, but must be processed from cassava root. Most recognizable are the tapioca pearls that are a staple in both tapioca pudding and in the increasingly popular Bubble Tea. Tapioca has been around for quite some time and was quite popular in the 18th and 19th centuries, particularly because the starchy tapioca pearls were an easy thickening agent and partly because they were easy to digest. Often, they were prescribed to the very young or old and infirm with digestive problems. Tapoica pudding saw a rise in popularity in the US in the 1960s through the 1980s and then fell off the culinary bandwagon for a while. However, we are seeing a recent resurgence in its popularity in modern times again.
The 15 year mortgage also has a history of rising and falling popularity with a slight increase in interest in the current market. By far, the most common term of a residential mortgage is 30 years. Interestingly, most people stay in their homes for fewer than 10 years (3-5), so for some, 30 years seems daunting. The prospect of not being able to fully pay off a mortgage may be difficult for some to digest (see what I did there?), so the concept of a shorter term mortgage was invented. Generally the qualifications for this type of loan are stricter (higher credit scores and tighter debt to income ratios) and that’s because payments are higher (you’re paying twice as fast) and lenders earn less on interest because of the faster payoff. Lately, we’ve been seeing these type of loans taken out by investors, on second home purchases, and on later in life home purchases.
But the 15 year payments may not be palatable by just anyone. Your finances may support paying more now, but if you’re uncertain about your job or reluctant to over commit “just in case,” a 15 year mortgage may not be the right avenue for you. Consider making additional payments on your 30 year mortgage instead (just make sure they are applied to principal only). Doing one additional full payment per year could decrease your actual mortgage payoff time from 30 years to as little as 20 or more!
Much like there is a time and a place for tapioca pudding, 15 year mortgages might not be the perfect fit for everyone’s financial situation, but in both cases, variety is the spice of life and simply knowing more about the many unique and unconventional options available to you may just help satisfy you completely. Need someone to help you find the right recipe for a successful real estate transaction? Let John Alaniva show you the proof in his pudding.
image courtesy of Presagio