How long should your mortgage term be? [Video]
Posted on Tuesday, March 14, 2017 at 12:39:44 PM
Deciding how long your mortgage term should be can be tricky. On the one hand, a longer mortgage means that you'll have more time to pay off your home, and it may be easier to budget for - as well as making it easier to be approved. On the other, a shorter mortgage means you'll own your home outright faster, as well as pay less in the long run.
The reason that a shorter term mortgage ends up cheaper in the grand scheme of things is interest rates. Interest rates for shorter term mortgages are typically lower than for longer terms. Unfortunately, this lower interest rate comes accompanied by higher monthly payments to compensate for the reduced pay-off time.
Choosing between a shorter and longer term mortgage - often a 15-year and 30-year - comes down to personal choice and understanding the state of your own finances. Do you foresee being able to pay more every month or not having to save as much? How long do you plan on living in your home? Do you have other expenses you need to put money away for, like college tuition or retirement?
By answering these questions, you'll have a better sense what kind of mortgage term is right for you. It can also help to talk to your local lender, who can offer insight about current interest rates and overall costs.