How to Pick Your Mortgage Term LengthHome purchase and refinance mortgages come in many different flavors. The terms of your mortgage will significantly affect your financial stability for decades to come. A mortgage you can afford will help you store up a reservoir of equity that can be accessed as needed in years to come. A mortgage you can't afford may cost you tens of thousands of dollars in losses when you lose your home or have to sell at a deficit. It's important to select the right mortgage terms in order to avoid getting into a home loan that doesn't fit you. Beyond trying to get the lowest mortgage rates possible, you need to pay careful attention to the mortgage term length you select, as the length of your loan will have a significant impact on its affordability. Determine what you can afford to pay to your mortgage each month. Set yourself a limit. Your interest rate and your credit score will affect what you have to pay, but nothing affects your monthly payment amount more than the length of your loan term. Don't try to figure out what term length to choose until you know what you can afford. Review the following loan term options and discuss each of them with your lender. 15 Year MortgageThis is the shortest commonly available loan type. There are some 10 year loans available, but 15 year loans are more common. If you can afford it, this is typically one of the best loans to get, as interest rates on these loans are typically lower than on other loans. You'll also save a significant amount of money in reduced interest costs over the life of the loan, which will be only half of what most mortgages are. 30 Year MortgageThis is the most common mortgage available to American homebuyers. It's the standard deal. It's often highly affordable. Mortgage rates tend to be reasonably low and monthly payment amounts tend to fit within the income brackets of most buyers. It's a solid middle of the road option. 40 Year MortgageThese loans are less common and can be difficult to apply for. Though they're much more affordable on a month-to-month basis, interest rates are often much higher than on other loans types and because the loan term is significantly longer, you'll end up paying more in the long run. These mortgages are typically sought as financial fallback plans. |
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