In today’s historically low interest environment, the vast majority of home mortgages issued are of the fixed rate variety. In most cases, people want to lock in these low rates for the life of their loan and therefore choose to do so. Once you determine that you are better served using this type of mortgage, rather than a variable rate, and you qualify, you must decide which term and/or duration is best for your needs, conditions, and/or situation. This article will therefore briefly discuss which length makes the most sense for you.
1. 15 years old or younger: The main advantage of this term is that the interest rate is almost always lower than those of longer terms. Fewer payments over fewer years, combined with lower rates, translates to much lower total payments. One’s accumulation of assets grows faster, and payments go much faster toward paying off principal, rather than just paying interest. However, there are also some drawbacks or limitations. One of these is that they require higher income, less overall debt and other assets to qualify. In addition, the monthly installment payments are obviously higher, due to the shorter term/period.
two. 20 – 25 Years: They are typically used as a compromise and/or middle term, which falls between short-term (15 years or less) and long-term mortgages. Although interest rates may be slightly lower than longer term rates, they are generally a bit higher than shorter term rates.
3. 30 years: Traditionally, the duration of 30 years is the most used type of mortgage. Although the interest rate may be slightly higher, today, these rates are still historically low. They generally provide an excellent opportunity for qualified individuals to acquire the financing necessary to purchase a home. Especially in today’s market where home prices have been rising for a couple of years, they often offer the best option available!
Four. 40 years: This extended term was rarely used, until recently. However, with rising home prices, extending the number of years to pay reduces monthly payments, although it increases total payments. Since qualifying for a mortgage is based on several factors, including percentages based on that monthly payment, obviously this term makes it easier for some to qualify.
Deciding what term and duration of a mortgage is an individual decision, based on several factors, including financial, one’s comfort zone, total monthly and overhead costs/expenses. What length do you think would best suit your needs and purposes, and why?