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When you’re applying for loan financing, your mortgage term length affects what your monthly payments may look like. While you may have heard terms like 30-year loans, many first-time homebuyers are often confused about what options they have.
We break down exactly what a mortgage term is, the major differences between short-term and long-term fixed rate mortgages, and what may influence your decision.
A mortgage term is the length of time you have to pay back the money loaned to you for your mortgage. As an example, a 15-year term means you would have 15 years to pay off your mortgage.
Mortgage terms vary depending on what loan program you choose and what you want your monthly payments to look like. They may be fixed rate and stay the same for the full term or be adjustable. With an adjustable-rate mortgage, the rate is only fixed for an initial period. After this expires, the rate may go up or down.
For clarity, we will focus on fixed rate mortgage terms.
A 30-year fixed mortgage term is considered the most popular term length among American homeowners. This loan term carries lower monthly payments and more time to pay off your mortgage. On the other hand, you will pay more interest when compared to a shorter mortgage term.
10- or 15- year terms are considered shorter mortgage terms. While these terms often have a higher monthly payment when compared to longer terms, a homeowner will reach equity more quickly. Additionally, a shorter mortgage term will mean you pay less interest over time because shorter terms have a lower initial interest rate than longer terms.
You can use our mortgage calculator to see how your payments will vary depending on the loan term you chose. Switching into the “schedule” tab, choose a 15-year loan term and then a 30-year term and compare the red interest line.
Stable income is a necessary for all loans. However, it’s especially important when deciding your mortgage term. Consider if you’ll be able to make your mortgage payments if you were to unexpectedly lose your job. If you were to take a lower mortgage term and pay high monthly payments, will your financial goals be severely impacted?
Before you commit to a loan term, look at your monthly and yearly budget. You should be able to afford your monthly mortgage payments and still have enough left over for other bills, your emergency fund, and general spending.
Loan programs all have different requirements and benefits, including the length of the mortgage term. An experienced and knowledgeable Loan Originator will help you decide what loan solution is best for your financial needs! Contact us today to get started on your homeownership journey.
Homestead Funding offers exceptional customer service and a convenient mortgage process. Whatever your financing needs, our goal is to exceed your expectations.
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