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.
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.
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.
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.