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  A 30-Year or 15-Year Loan? - Back
When you get a loan to buy your home, you’ll have to make lots of decisions about where to get the loan, how much to borrow, and the various loan repayment options.

Two of the most popular home loans are, of course, the 30-year loan and the 15-year loan. Which one is best for you? There are distinct advantages to both the 30-year loan and the one that’s paid back over 15 years.

A 30-year fixed-rate loan helps you define your long-term budget by letting you know what your monthly house payment will be, what part of that is interest, and how much you’ll be able to write off on your taxes as a result. Unless your lender has specific restrictions, you can increase your monthly payments and decrease the amount of interest you pay over the life of the loan by shortening the repayment period.

When you find that your circumstances and budget will allow for a heftier house payment, you may want to check in with your lender and learn how that might be beneficial to you. In most cases, one extra monthly payment per year can turn your 30-year fixed-rate loan into a 20-year loan. You may want to pay a certain amount each month on the principal. This too will reduce the life of the loan.

A 15-year loan is, of course, paid off in half the time of a 30-year note. You’ll probably get a better rate, and the loan will be paid off much quicker with higher monthly payments. But while you can decrease the payback time on a 30-year loan, you can’t extend the payback period on a 15-year loan. The savings are greater and so are the demands of the term of the loan.

You’ll have to run the numbers with your lender to see which type of loan will benefit you in the long run. If you plan to sell in less than seven years, some lenders offer a “short-term fixed” loan that is amortized over 30 years, but actually paid in full over five to seven years, and offers a break in the interest rate as well.

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