Suze Orman thinks more people should choose a 15 year fixed rate mortgage, but I don’t think a 15 year fixed rate mortgage is right for everyone. However, if you have your retirement savings on track, along with 8 months of emergency funds set aside in your savings account, then a 15 year fixed could be a good choice for you. Keep in mind that the monthly payment is nearly 50% higher, so you are locking yourself into a much bigger payment. And that would make a job loss or a sabbatical more of a challenge financially. I would not advise a 15 year fixed rate if the payment interfered with your ability to max out your 401-K and any other tax deferred accounts available to you. Personally, I am more a fan of the 30 year fixed rate – yes, the rate is a bit higher, but the payment is more manageable. And instead of putting extra funds towards paying off your mortgage early, you could focus on maximizing your savings every month. Remember that if you have paid off your mortgage and need to tap into that home equity in the future, you’d need to qualify for a new mortgage, at whatever rates are available in the future. But if instead you’ve been socking away funds in an investment account, those funds should be much more easily accessible.
Here is a link to Suze Orman’s article about this on CNBC: