How to decide – Forbes Advisor

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Mortgages come in all shapes and sizes, from low down payment options to jumbo loans. Beyond the type of mortgage you choose, you also need to decide how long you want to repay the loan, this is called the term of the mortgage.

There are many types of mortgages to help you buy a home, but the most common ones tend to last 15 or 30 years. If you want lower monthly payments, you may need to extend your home loan to 30 years. A 15-year mortgage may have higher monthly payments, but cuts the term of the loan in half, which also reduces the amount of interest you pay.

To determine which type of mortgage is right for you and compare your total costs, simply enter the total cost of the home, your expected down payment amount and the interest rate below.

Summary of the 15-year loan

Monthly payment

Total cost

(the main interest)

(down payment, principal, interest)

Cost per year (excluding deposit, taxes and insurance)

30 Year Loan Summary

Monthly payment

Total cost

(the main interest)

(down payment, principal, interest)

Cost per year (excluding deposit, taxes and insurance)

Disclaimer: These calculations are based on estimates and may not be exact depending on your lender and your personal credit profile.

What is a 30 year mortgage?

When you get a traditional 30-year mortgage, you pay a fixed amount of principal and interest each month spread over 30 years, or until you sell the house and pay off the mortgage sooner.

What is a 15 year mortgage?

Similar to the 30-year mortgage, you’ll have a fixed monthly payment based on principal and interest, but spread over 15 years.

15 years against. 30-year mortgage: how to decide

A 15-year and 30-year mortgage can have fixed interest rates and fixed monthly payments over the life of the loan. However, a 15-year mortgage means your home will be paid off in 15 years rather than the full 30-year mortgage, provided you make the required minimum monthly payments.

The 15-year mortgage tends to have a lower interest rate, although mortgage rates have been low overall for some time. However, monthly payments are higher on a 15-year mortgage because you pay off the capital faster than a 30-year mortgage.

The choice between the two depends on your financial situation, including your credit score and history, your down payment, and the amount of cash reserves you wish to maintain on a monthly basis.

A 15-year mortgage might be better suited if you have more monthly cash flow and want to pay off your house faster, for example. Alternatively, a 30-year mortgage might be better for someone on a more limited budget or who wants to save money by paying less on their mortgage but for a longer period. A longer-term mortgage might also make more sense if you plan to stay for decades.

The interest rate environment also plays a role in how long you want to extend your mortgage. For example, if rates are low, it may make more sense to lock in that lower rate for the longer term, and then use your extra monthly money to invest in something else that has a higher rate of return at that time. , such as stocks or purchases. an investment property. Whereas if interest rates are high, you might want to get a shorter term mortgage so you only pay that interest rate for 15 years instead of 30 years.

There’s also the option of refinancing a 30-year mortgage to a 15-year mortgage if your financial situation changes and you want to pay off your home loan faster or lower your interest rate.

Mortgage FAQs

How does a mortgage work?

A mortgage is a secured loan that uses the home as collateral for the lender to give you financing. This means the lender will have a lien on your home until the mortgage is paid in full. After closing, you’ll make monthly payments, which cover principal, interest, taxes, and insurance. If you breach the mortgage, the bank will have the option of foreclosing the property.

What are the types of mortgages?

There are several common types of mortgages.

These include conventional loans and jumbo mortgages, which are issued by private lenders but have stricter qualifications because they exceed maximum loan amounts established by the Federal Housing Finance Administration (FHFA).

Potential buyers can also access federally insured mortgages, including Federal Housing Administration (FHA), United States Department of Agriculture (USDA), United States Department of Veterans Affairs (VA), and 203( k). The minimum qualifications for these mortgages vary, but they are all aimed at low to middle income buyers as well as first-time buyers.

In addition to the mortgage type, borrowers can choose how long they want to pay off that mortgage, called the mortgage term. Mortgage terms are usually 15 or 30 years, which means you have 15 or 30 years to pay off the loan. For example, let’s say you choose a 15-year FHA mortgage. The type of mortgage is FHA, but the term is 15 years.

Some lenders offer custom loan terms, allowing borrowers to choose a repayment schedule that doesn’t fall into the 15- or 30-year brackets.

How to apply for a mortgage loan?

Mortgages are available from traditional banks and credit unions as well as a number of online lenders. To apply for a mortgage, review your credit profile and, if necessary, improve your credit score to qualify for the lowest possible interest rate.

Next, calculate the price of the house you can afford, including how much down payment you can afford. When you’re ready to apply, compile the necessary documents such as income verification and proof of assets, and start searching for the best rates.

Studies have shown that borrowers who shop around get better rates than those who choose the first lender they find. You’ll want to know what rates they offer as well as the annual percentage rate (APR) – this is the overall cost of a loan, including fees. Some lenders may offer lower interest rates but charge higher fees, which may negate the savings.

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