15-year or 25-year mortgage?
When deciding on which mortgage to take out, one of the first big choices to make concerns the duration. Is it better to have a shorter mortgage of 15 years, with higher instalments but less interest? Or a longer 25-year mortgage with lower instalments but a higher overall cost? The answer depends very much on your needs, financial prospects and life goals.
Let's take a look at the advantages and disadvantages of both options and a surprising idea that could overturn common perceptions about long-term mortgages.
15-year mortgage: you pay more per month, but save on interest
Opting for a 15-year mortgage means significantly reducing the time you are bound to pay instalments. This brings with it some important advantages:
Less overall interests: Because the debt is paid off in less time, the total interests you will pay will be much lower than with a longer term mortgage. It is like getting rid of a major financial burden sooner.
- Ownership in a shorter time: If you can afford higher monthly instalments, you will become the owner of your home much faster, thus eliminating the debt in just 15 years.
The downside? The monthly instalments will be significantly higher, ranging from EUR 600 to EUR 700 per month or even more, depending on the initial capital and the interest rate. For some people, this may be too much of a financial commitment, especially in the case of not very high income or high family expenses.
25-year mortgage: lower instalments and earning potential
The 25-year mortgage is the most popular choice because it makes the monthly instalment much more manageable. But it is not only about easing the monthly budget; there are also other interesting considerations:
- Lower instalments, more flexibility: The monthly instalments will be significantly lower than with a 15-year mortgage, allowing you to have more money available for other expenses or savings. This can make a difference if you want to maintain some liquidity or plan future investments.
- Savings and investment opportunities: One of the lesser-known but very effective tips concerns the intelligent use of the difference between the instalment of a 25-year and a 15-year mortgage. Suppose that the 25-year mortgage instalment is EUR 500 per month, while the 15-year one would be EUR 700. The difference of EUR 200 per month can be invested or set aside in a savings plan.
Over the course of 25 years, those EUR 200 per month can generate significant capital thanks to compound interests, potentially outweighing the additional interest costs you would pay on the longer-term mortgage. This type of strategy can offer you an additional return that you would never get with a shorter mortgage.
What is the best choice for you?
There is no universal answer to the question ‘is a 15-year or a 25-year mortgage better?’. The decision depends on a number of personal factors:
- Your income: If you have a stable income and can afford a higher instalment, the 15-year mortgage may be the right choice to save on interest and become an owner sooner.
- Your risk tolerance: If you prefer to keep more liquidity and plan to invest the difference, the 25-year mortgage may offer you more financial flexibility.
- Your long-term goals: Do you want to pay off the debt sooner and get rid of the mortgage burden, or do you prefer a ‘lighter’ management of monthly expenses, using the time to build up capital elsewhere?
The final tip: think long term
Choosing the duration of your mortgage is not only a question of numbers, but also of strategy. A 15-year mortgage allows you to save on interests and become an owner of your home in less time, but requires more financial effort in the short term. A 25-year mortgage, on the other hand, offers you more breathing space each month, giving you the opportunity to use the difference to invest and create savings that could even bring you a profit in the long run.
So, before making a decision, analyse your finances, balance costs and benefits, and consider the mortgage not just as a debt to be paid off, but as a tool that can fit your future goals and strategies.
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