Loan Term, Interest Rates, and Monthly Payment

Loan Term, Interest Rates, and Monthly Payment

Homeownership is costly, so it only makes sense to choose a loan that will help you save money. For many Americans, a 30-year mortgage seems like a good choice, which is also the most common loan for first-time buyers. In fact, the Mortgage Bankers Association notes that the majority of mortgage applicants choose the 30-year term.

Loan Term and Costs

Mortgage brokers in Fort Myers, such as Primary Residential Mortgage, Inc. Fort Myers, note that when choosing a loan, the mortgage term affects the cost. If you choose a mortgage with a longer term, you’ll pay more interest over time.  Some avoid the 15-year mortgage because of its higher monthly payments, but it is actually more affordable. You’ll pay off the balance faster and become mortgage-free after one and a half decades.

Interest Rates

Less risky loans like a 15-year mortgage usually come with lower interest rates, as they are cheaper to fund. Repaying the loan faster also means less interest to pay. If you use a mortgage payment calculator, you’ll notice that monthly payment for a 15-year term is significantly higher than that for a 30-year term, but this means that less money will go to paying the interest.  

Approaching Retirement

It is best to choose a shorter mortgage if you can afford a higher payment. This is especially true if you’re nearing retirement, which means being dependent on a certain or fixed income. It is also better to benefit from a bigger cash flow while you’re still working to pay off the loan before you retire. Through this, you won’t have to pull money from your savings or fixed income.

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The Case of Affordability

The monthly payment for a 15-year mortgage can be a couple hundred dollars higher than a 30-year mortgage. This is one of the reasons many forgo a shorter term and choose the other option with a lower payment. You can still choose a 30-year term if the payments are more comfortable for you. You can then make larger payments or pay the loan faster if you can afford to do so.

Talk to a reliable lender or mortgage broker to learn more about mortgage terms and payment. This can help you decide and make the right choice.