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4 Reasons to Avoid a 30-Year Mortgage at All Costs

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When Americans borrow money with which to buy a home, the most commonly used loan is the 30-year fixed-rate mortgage, with more than 80% of homebuyers opting for it. Thirty-year mortgages have some definite pluses, but there are some meaning drawbacks, as well.

Here are four reasons why you might want to consider some alternatives to the standard 30-year mortgage. See if they make sense to you and keep them in mind whenever you start the process of getting preapproved and then approved for a mortgage -- or a refinancing!

Reason No. 1 to avoid a 30-year mortgage: It's costly

The main reason to avoid a 30-year mortgage is because it's costly. You'll typically pay more thantwice as much in interest over the life of the loan with a 30-year loan as with a 15-year one. That, of course, is because the loan is lasting a long time.

Many people favor longer loans because their monthly payments are lower. That is indeed a factor worth considering. Check out the examples below to appreciate the difference in monthly payments with the two kinds of loans (assuming a 20% down payment in each case). Note that I assigned a lower interest rate for the 15-year mortgage because they typically feature lower rates.

Clearly, the 30-year mortgage will cost you a lot less each month. But over the life of both loans, it will cost you a lot more -- in interest. Check out the examples below:

Reason No. 2 to avoid a 30-year mortgage: Higher interest rates

Next up: Interest rates. As I mentioned above, you'll generally get higher interest rates taking out a 30-year loan than if you take on a shorter-term one. Per Freddie Mac, the national average interest rate for a 30-year fixed-rate mortgage was recently 4.21%, compared with just 3.42% for a 15-year loan. (Those are up, respectively, from 3.68% and 2.96% a year earlier, showing how rates have been rising.) No matter what mortgage you decide to take on, be sure to compare mortgage rates. A little shopping can turn up better rates than you might have expected. 

Reason No. 3 to avoid a 30-year mortgage: Slow equity-building

Mortgages let us borrow money from a lender to buy a house and to slowly build equity in that home, as we pay off the loan over many years. With a 30-year mortgage, though, you'll build equityreally slowly, as the loan stretches over three decades.

Reason No. 4 to avoid a 30-year mortgage: It lasts 30 years

A final reason to avoid a 30-year mortgage may seem rather obvious: because it lasts 30 years. That might not seem problematic when you take out the loan, but consider your age and your retirement plans. If you're 52 years old and you're considering taking on a 30-year mortgage, note that you'll be 82 when you finally pay it off -- if you make only your expected monthly payments. Most retirees would rather not have mortgage payments hanging over their heads when they're on fixed incomes.