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While the inflation dropped slightly
in February, it has been ticking back up overall over the last few months, and it’s changing how smart homebuyers approach their mortgages. If you’re in the market for a home this year
, you may wonder: Is a 30-year or 15-year mortgage better
in this economic environment?
To help you make a wise choice, we asked mortgage experts to weigh in on both loan types during inflationary periods. Their advice will guide you toward the mortgage loan that best aligns with your financial situation and long-term goals.
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30-year vs. 15-year mortgage loans: Which is better during inflation?
The best mortgage loan during inflation depends on your job stability and income prospects, experts say.
“While a 15-year mortgage offers the greatest long-term savings, a 30-year loan [provides more flexibility with] lower monthly payments,” says Debbie Calixto, sales manager at loanDepot.
Below, we’ll look at when each mortgage term makes financial sense and what long-term impacts you should consider before deciding.
When a 30-year mortgage makes sense during inflation
“When inflation is running high, a 30-year mortgage [gives] you cash flow flexibility,” says Reed Letson, a mortgage broker and owner of Elevation Mortgage. As inflation rises, your fixed mortgage payment becomes cheaper while your income typically increases.
A 30-year mortgage
makes the most sense in the following scenarios:
- Your income fluctuates: Lower payments offer security when you have income changes or unexpected expenses. This “can be especially valuable when the cost of living is rising,” Calixto says.
- You want to invest elsewhere: A 30-year term means you spend more time paying interest. However, lower monthly payments mean more liquid cash to invest in other assets that could outpace inflation.
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When a 15-year mortgage makes sense during inflation
“A 15-year mortgage is a better hedge against inflation than a longer-term loan if you can comfortably afford higher monthly payments,” Calixto says. These higher payments allow you to build equity faster
and greatly reduce the total interest paid over the life of your loan.
A 15-year mortgage typically makes the most sense in the following scenarios:
- You have a stable, high income: If you have consistent earnings and prioritize becoming debt-free, Letson suggests the higher payments can be worth the long-term savings.
- You’re planning for retirement: With more of each payment going toward the principal from the start, you’ll own your home outright sooner. Paying off your home before retirement provides more security when your income drops.
Long-term financial impacts to consider when comparing mortgage terms
Before committing to a 15-year or 30-year mortgage loan, industry professionals recommend considering these factors:
- Future financial flexibility: A 30-year mortgage’s lower payments provide a nice buffer for unforeseen financial changes. “If you end up with extra cash flow, you can still speed up your repayment by making additional payments toward the principal,” says Calixto.
- Opportunity costs: “If you go with a 15-year mortgage, you may miss out on investment opportunities that you could’ve jumped on if you had a 30-year mortgage,” Letson warns.
- Refinancing options: “The downside to inflation is higher rates,” says Dean Rathbun, executive vice president at United American Mortgage Corporation. But a 15-year mortgage will pay down the principal faster. When mortgage interest rates
go down, you can refinance to a lower payment or even shorter terms. - Rate differentials: “Make sure the rate on a 15-year mortgage is at least 0.375% lower than a 30-year mortgage,” advises Rathbun. Otherwise, a 30-year loan with extra payments might be better.
How to find the best mortgage lender in today’s economy
Finding the right mortgage lender
is as important as choosing between a 15-year and 30-year loan. “A knowledgable [one] will take the time to understand your needs, priorities and preferences,” Calixto says.
Here are practical tips for finding the best mortgage lender during inflation:
- Gather quotes from at least three lenders: “Compare their rates and fees,” says Rathbun. “Some lenders work on lower margins, which allow [you] to [secure] a lower interest rate.”
- Look beyond the interest rate: The lowest rate isn’t always the best deal. Consider the total — including fees, points and closing costs
. A slightly higher rate might sometimes cost less overall. - Negotiate rate locks: “[During] high inflation, [we’re] more susceptible to big swings in rates,” Letson says. Negotiating extended rate locks
before you go under contract protects you if rates rise before you close on your home. - Check responsiveness: How long does it take the lender to return calls and emails? In a volatile rate environment, swift communication can save you money and stress.
The bottom line
Inflation affects everyone differently, making your mortgage decision highly personal. The best choice for your friend may not be the best for you. So, “talk with your financial advisor and loan officer to devise a solid plan for your situation,” advises Letson. The ideal mortgage term will support your monthly budget today and your financial goals for tomorrow — regardless of the economy’s ups and downs.