Most people who plan to refinance usually only think about lowering their rates. But there’s another thing that you should take into consideration if you want to save money, and that’s the mortgage term.
The mortgage term is the length of your mortgage, the time you have to pay off your loan. It’s important because it determines how many mortgage payments you need to make and the amount of interest that you will pay. Mortgage terms come in all sizes, from small, to medium, to large, and can range between 10 and 40 years. Two of them, however, are the most common. These are the 30-year term and the 15-year term.
The 30-year mortgage
The 30-year mortgage is the most popular. With one of these, you need to pay the loan in full after 30 years. It’s one of the safest and most simple loan programs out there, especially if it comes with a fixed rate that doesn’t change for the entire 30 years. This doesn’t mean that the 30-year mortgage doesn’t come with adjustable rates.
Probably the best part of a 30-year mortgage is the fact that it features low monthly payments, at least lower than the ones for the 15-year mortgage. It’s also easier to qualify for and it allows you to make prepayments if you really want to. However, there are also downsides to it. These include the higher interest rate, more interest payments and the fact that you’ll build equity slower. Not to mention that you won’t own your home outright for 30 years.
The 15-year mortgage
With a 15-year mortgage, you save money. Although it comes with larger monthly payments, you pay less interest, since the home-loan repayment time is shorter. Not only that, but the shorter term can also guarantee that you have a peaceful retirement, which is something that you shouldn’t underestimate. With no financial stress, you’ll be able to relax without a care in the world.
Another huge benefit of 15-year mortgages is the fact that they help you build equity faster. This can make refinancing a lot easier and offer you more financial opportunities.
Unfortunately, 15-year mortgages also come with a few other disadvantages, in addition to the higher monthly payments. It’s harder to qualify for a 15-year mortgage and you’ll also qualify for less mortgage value and therefore home value.
The bottom line
The mortgage term is one of the most important things you need to consider when looking to get a mortgage or refinance your home. The fact that there are many different types of mortgage terms can prove a great advantage. All you need to do is to spend some time and find out which one is best for you.