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Are 30-year mortgages a smart financial decision?

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Thirty-year mortgages are smart financial decisions if the home buyer needs lower monthly payments to free up cash for other purposes, reports Bankrate. Lower monthly payments provide better financial security for those whose income flows are not always consistent, according to AARP.

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Spreading monthly payments over 30 years rather than 15 years results in monthly payments low enough to make housing affordable for more home buyers, reports Richard Barrington for Forbes. The lower payments of 30-year mortgages free cash that home buyers can use for high-yield investments and paying off credit card debt, according to AARP. Home buyers with 30-year mortgages can also voluntarily increase monthly payments when they are able to pay off their mortgage more quickly. Although holders of 30-year mortgages pay significantly more interest than those with 15-year mortgages, interest on mortgages is tax deductible, which helps reduce liabilities of federal income taxes, states Bankrate.

Although 30-year mortgages have a number of advantages, sometimes refinancing them to 15-year loans is advantageous, especially when mortgage interest rates are low, notes Barrington. Because interest rates are lower for 15-year mortgages, and the interest accumulates for less time, the total cost of a 15-year mortgage is much less than a 30-year mortgage, according to AARP. Additionally, there is a psychological boon to having a mortgage paid off before retirement. Home buyers need to do the math and choose the option that is best for their own personal situation, explains Barrington.

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