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How To Choose A Home Loan Term
Mortgage
loans are generally offered in 10, 15, 20, 30, and
sometimes even 40 year terms. The "term" is the amount
of time you will repay the loan (with interest) over.
Which mortgage term is right for you will generally
depend on two things: your budget and your financial
goals related to the property.
The shorter the term the higher the mortgage payment, so many homeowners will
find they can only afford or qualify for the payment
on a 20 or 30 year loan. If the higher payment is
an option than your own preferences and priorities
come into play. Would you like to own the home free
and clear as soon as possible? Would you like to pay
as little as possible in interest? Would you like
to keep your monthly investment into the home lower
so money is freed up for other purposes?
Check out the following pros and cons of shorter (10
or 15 years) and longer (20, 30 years or more) term
mortgages to help decide what makes the most sense
for your property:
Short Loan Term Pros:
- Lower interest paid over the life of the loan.
- Mortgage paid off years sooner.
- Lower mortgage rate
Short Loan Term Cons:
- Higher monthly payment.
- Can be tougher to qualify for due to higher payment.
Long Loan Term Pros:
- Lower monthly payment.
- Can be easier to qualify for.
Long Loan Term Cons:
- More interest paid - end up paying more for the home in the end.
- Additional years until mortgage free.
- Higher interest rate.
If you like the idea of paying off your loan sooner and eliminating some of the interest costs but don't want to commit to the higher payment of a ten or fifteen year loan consider making an extra payment a few times a year on your 30 year mortgage. Paying down the principal just a little can lead to huge interest savings and even shave years off your loan. Run the numbers using the extra payment mortgage calculator to see for yourself.
More Mortgage Education Resources
Use the following links to learn more about the mortgage financing process and
get moving forward on the path to homeownership.
