When considering the length (or term) for your mortgage will depend on many key factors. Considerations need to be made on your current financial situation and your goals for the future. You will need to consider how much you can afford to spend each month while still maintaining a acceptable amount of cash reserve in the event of an emergency is very important.
While shorter term mortgages, such as 10 year, 15 year, 20 year and 25 year mortgages are often advertised with very low interest rates, they should only be utilized if your express purpose is to pay off the home as rapidly as possible without regard to other investments. Alternatives, such as bi-0weekly mortgages or annual prepayments (making an extra mortgage payment each year) to a 30 year fixed can help you pay off the home rapidly, sometimes as quickly as 22 yeasr, but provide you with substantially more cash flow to allocate to other, more liquid and more rapidly appreciating asset classes in your investment portfolio.
You can even get a 50 year term in some states, like California.
Amortizing over a longer period may be a more sensible loan when compared to interest-only or negative amortization type mortgages.
Again, a mortgage consultant can help guide you through which loan term is right for you. If you're not currently working with one, you can call Dave Zwierecki at 888-418-4467 anytime.
Home buyers who do not intend to keep the mortgage for more than a few years but still want the low monthly payments that a longer term mortgage offers often find solution in "Balloon Mortgage". Balloon Mortgages are loans that are amortized for a period longer than the loan term. A common balloon loan is the 15/30, in which the loan is due in 15 years but payments are amortized over 30 years.
There are many options available for you to choose concerning the length of your mortgage. Options beside the typical 15 and 30 year terms are: 10, 20, 25 and 40 year fixed rate loans. Hybrid Arms offer your fixed and interest only terms in 3, 5, 7 and 10 year terms. A mortgage or loan consultant can help guide you through which loan term is right for you.
Its important to know that if you choose an adjustable rate mortgage, that it will still be amortized as if it were a 30 year fixed. Many consumers get this confused when they are shopping for a new loan. The 3,5,and 7 year ARMs offer lower interest rates and are a good way to keep your payments low.
You should always consider your short and long term financial goals when considering the length of your mortgage note. You should weigh the benefits of the longer term mortgages in regards to monthly cost saving, compared to the shorter termed loans which will save you thousands of dollars in interest payments over the life of the loan. Always remember there are ways to pay your mortgage off earlier than the note term, which can also save you thousands as well.
If you can afford a higher payment get a shorter term mortgage, this will save you tens of thousands of dollars in interest charges!
Generally, you will use a longer-term mortgage to lower your monthly payments to a managable level, and a shorter-term mortgage to save money over the long term and pay off your home quicker. Many people think that if you go from a 30 year fixed mortgage to a 15 year fixed, your payments will double. This is not the case.
15 year loans generally come with a smaller interest rate, which saves you some money. But it's also important to know that most of your monthly payment is interest. A relatively small amount is payed toward your principle balance. For that reason, it doesn't take a large increase in your principle payment to pay off the mortgage quicker.
If you just arent sure how long your mortgage should be, keep in mind that you can always pay more than the monthly payment, but you can never pay less. It may be wise to go with a longer-term mortgage to lower your monthly payment, and if you want you can pay extra to pay off the loan faster.
The most common length loan is 30 years. Most people refinance well before that so the length of the loan may not be the most important consideration. Weigh how long you plan to have the mortgage and the amount of payments that you can afford.