Is a 30 year mortgage loan the right fit for you?

All Those Terms!

Interest rates, points, length of term --- it can be daunting when you're looking for a mortgage, whether to purchase or to refinance.  It’s true that if you take out a mortgage with a shorter term—such as a 15-year or 10-year fixed-rate loan—you’ll pay less in interest if you pay off your loan in full. In fact, depending on your interest rate and the size of your mortgage, you could save many, many thousands if you take out a 15- or 20-year fixed-rate loan instead of a 30-year version.

Monthly Payment

When you take out a 15-year fixed-rate loan, your monthly payment—depending, again, on such factors as your interest rate, size of your loan and property taxes and insurance—could be a few hundred or more a month than if you took out a longer-term loan, such as a 30-year fixed-rate version.

So if monthly cash flow is a key issue for you, in the long run, you might do better financially to take out that 30-year loan. This type of loan will give you a smaller monthly payment, freeing up funds for you to spend in other ways.  If you want to lessen the amount of interest you'll pay over the life of the loan, and pay the loan of more quickly, you can add extra money to your monthly payment to be put toward principal reduction.  Some people round up the monthly payment to an even dollar amount.  Even just a few dollars a month helps reduce long term costs.  Or many lenders suggest that you make one extra payment per year.  It's up to you!  Just be sure to put that extra money against the principal, not the interest or escrow.

There are also adjustable-rate mortgages, which are also available for different term lengths.  Adjustables are often a great choice for people who know they will be moving within the next 5-7 years.  You can save a lot on your monthly payment by locking into a low rate adjustable loan.

Pay in Full?

Relatively few homeowners ever pay off the entirety of their mortgages.  Even those who take out 15-year loans don’t always stay in their homes for 15 years or more. Looking at national averages, homeowners often move every five to seven years. This means that the odds are against you ever paying off your longer-term mortgage loan in full—and incurring all of the interest that comes with it.  So looking solely at the amount of interest you might save by taking a shorter term loan isn't necessarily the best way to compare mortgage products. If you do have the means to pay the mortgage off in full, be sure to consult a tax professional or financial advisor to be sure it's the most prudent action for you to take.

Need More Information?

Don't hesitate to reach out to me today!  While I'm not a lender or banker, I can definitely connect you to some fantastic mortgage brokers who can explain all your options.