30- vs 15-year mortgages

As the housing market improves, more people are taking out mortgages and having to decide how long the mortgage should be. NC State University economist Mike Walden compares the advantages and disadvantages of 30-year versus 15-year mortgages.

“As with most things in the economy and most things in investing there is always a series of pros and cons. Now for a 15-year mortgage, the big pro is you are going to pay it off early. I had a friend that when he bought his first house, he was determined to take out a 15-year mortgage because he wanted to … tear up that mortgage in 15 years rather than 30 years.

“Now you are going to pay for that, however, in the sense that your monthly payments are going to be higher with the 15 year than with the 30 year. It also means you are going to have less money there to spend on other things, and your tax benefits may also be affected.

“Now one way to look at this is to always ask, What could you earn on that money? So, for example, if you had a mortgage rate that was 4 percent but you could invest your money and confidently earn 6 percent, it would actually benefit you to go with the longer mortgage because that would free up money for you to put in the 6 percent investment. On the other hand, if you knew you were going to blow that money on things you really don’t need, then it’s better off to put that money into a 15-year mortgage.

“So there are always pros and cons, but definitely, I think, a 15-year mortgage has become more popular today than it has been in the past.”