Which Mortgage Term Is Right for You?

?????????????????Many homeowners are used to hearing about various mortgage loan programs on the radio, news or online. With a listed rate and payment amount many consumers sign up for a 30 year mortgage simply because it is the standard thing to do. What many people do not know is that there are additional mortgage program options and a 30 year loan is not the best choice for every family. A home loan should match your financial goals which is why different terms are available.

Here is a review of various loan terms to determine which solution is right for you:

30 Year Term: This is the standard loan length in the sense that most home owners use a 30 year loan to purchase a home or when they refinance. If you don’t request a different term when speaking with a mortgage lender they will probably quote home loan rates for 30 years. This term is ideal for people that want to keep their mortgage payment low. Families with fluctuating expenses (children for example) may want this option because it provides the most flexibility in their monthly budget. This is also an option for people that are younger – as the ultimate goal is to eventually pay off your home.

20 Year Term: This loan term is ideal for people that want to pay off their home faster but do not want to stretch their budget too far. People that are on the fence as to whether or not they could comfortably pay more on their mortgage should try the 20 year loan. It is less impacting than switching to a 15 year but still makes a large dent in the principal and loan term.

15 Year Term: This is an ideal loan for people that can afford to pay more on their monthly mortgage. If you have just paid off all of your other debts like the cars and credit cards – this could be a good choice for you. Simply take the money you were paying on other debts and apply it to the mortgage so that your home is paid off in half the normal time without causing a large impact on the monthly budget.

10 Year Term: People that are planning on retiring in the next fifteen years should consider a ten year loan. Aggressively paying on your mortgage now, while you are working, will allow retirement income to be allocated to regular living expenses such as utilities, groceries, entertainment, and traveling.

One thing to keep in mind when refinancing your home is that you do not want to extend the term of your mortgage or prolong the final payoff date. For example if you got a 30 year mortgage in 2002 you only have 20 years left until it is completely paid off. If you refinance to another 30 year loan you are extending your payoff date by a decade even though the interest rate may be lower. The better solution is to refinance to a 20 year term loan so that your payoff date is not extended but you are still able to take advantage of low interest rates.

If you can financially afford to reduce the term of your loan – do so. It will save you thousands of dollars in the long run on accumulated interest. Here is a breakdown of what you would pay in interest on a $200,000 loan at 6% over the four different terms listed above:

30 Year: $231,676
20 Year: $143,886
15 Year: $103,788
10 Year: $ 66,449

The amount saved over the life of the loan is incredible when looking at reducing your mortgage term. Speak with a professional mortgage banker today to learn what refinance mortgage rates are available with the various loan terms. Find out how you can save money be refinancing not only on your monthly payment but over the life of the loan.

With a little better understanding of mortgage terms a homeowner can make a better decision about refinancing a mortgage. The most important thing is not always which mortgage loan programs are available but instead choosing the options that fit your needs.


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