Deciding on a home loan term is one of the most important decisions you have to make when purchasing a house with a mortgage. The common terms are 15 and 30 years, but some lenders also offer loans that are payable for 10, 20, or 40 years. The right mortgage term varies from buyer to buyer, as this will depend on your unique situation and financial goals.
As the idea of making loan payments for the rest of your life is never exciting, you might think that choosing a shorter loan term is better. This is not always the case, though. While it is true that shorter loans have plenty of benefits, there are certain situations where a longer term makes more sense. It is best to examine the pros and cons before making a decision.
If you are getting a loan and thinking of what loan term to choose, Utah mortgage lenders suggest doing some research. This is to find out how the term affects your total payment and interest, as well as the size of the loan you can qualify for. Here are a few things you need to know about mortgage terms:
What can happen to your monthly payments?
With a shorter loan term like a 15-year mortgage, your monthly payments are higher, but you’ll pay less in interest over time. With a 30-year mortgage, on the other hand, your payments will be smaller but you’ll end up paying more interest in total. The lower payments, however, may allow you to get a bigger loan than you would be able to afford with a 15-year mortgage.
Should you choose a 15-year loan?
Based on the total interests alone, 15-year mortgages sound like a better choice. Then again, before choosing this term, you have to examine your finances and make sure that you can afford the higher monthly payments. A shorter loan term may be the right choice if you have a stable and well-paying job, and don’t expect your income to drop dramatically anytime.
It is also important to consider how higher monthly bills will affect your savings and other financial goals. If you can still be consistent with your savings despite the higher payments, it is probably the right one. If choosing this loan, however, means not being able to save for retirement and other life goals, then maybe it is not the ideal choice.
Is a 30-year term better?
A 30-year mortgage is the most common type of loan term, mainly due to its affordability and this sometimes outweigh the benefits of a 15-year mortgage term. This is because having low payments can provide some sort of security and peace of mind, especially in the event of a job loss or any negative changes in your financial situation.
Smaller payments also allow you to buildup savings and have funds for other plans or life goals. You may also be able to pay you debs or make some renovations in the house. If you happen to accomplish most of your goals earlier, you can choose to increase your payments or pay your mortgage early. Just be sure to ask your lender about prepayment penalties to avoid surprises.
Learn more about the pros and cons of each loan term to make an informed decision. You can also benefit from talking to a reliable mortgage lender to learn more about your options.