A mortgage loan term is the amount of time prior to paying
fully for a new home loan. For instance, at the end of 30 years, a 30-year home
loan will be fully paid off. The lower the monthly payment, the longer is the
home mortgage loan term.
But due to the higher interest rates the buildup of equity slows
down since in the first few years, the buyer is mostly paying off interest. High
monthly payments and typically lower interest rates are offered by the shorter
home loan terms, thus letting the buyer build equity on the house faster.
30 year home loan and 15 year home loan are two of the most
common mortgage loan terms. Because of its lower monthly payments, first time
home buyers typically choose the 30-year home loan.
By means of monthly installments, the amount of the home
loan is spread out over the course of 30 years, totaling 360 installments,
while the monthly installments for a 15 year home loan is paid over the course
of 15 years, totaling 180 installments. For instance, the mortgage payment on a
$100,000 house with a 7.5 % interest rate is only $699 per month.
Distinguish this amount to the $913 monthly payment from a
15 year home loan with a 7.25 % interest rate. The lower monthly payments of
the 30 year home loan let the buyers to save more of their money at the present
time.
However, after ten years, buyers with a 30 year home loan
will have paid less than 15 % of the total amount, while buyers with a 15 year home
loan will have paid about half of their balance.
For equity that is acquired, this
is a significant difference. Generally, 15 year home loan term will be chosen by
the buyers that want to build equity quickly and can afford the higher monthly
payments.
If you have the will power to invest the savings from the
monthly payments, it still could be a good choice to go with the 30 year
mortgage. Particularly if you can find an investment that the long term payoff
matches or exceeds what you would save in a 15 year mortgage.
Another factor to
consider is how fast you want to accrue equity in your home or to own it out
right. 30 year home loan rates take much longer to build equity.
30 year home loan rates are certainly attractive and the
vast majority of home buyers get 30-year loans since that is the longest home
loan available today. Experts agree that if they could get a 35- or 40-year
loan, they probably would.
There are many other options to consider. Probably when
considering a loan the biggest question you have to ask yourself is what are your
financial goals? What loan plan will help you the most to reach that goal?
For the best loan available for you and your financial
goals, it is clearly to your advantage to look into other loan options. It may
surprise you that there may be other plans more suitable for you on account of
your personal situation.
Two options are available for those who choose a 30 year home
loan term and later decide they want to build equity faster:
In addition to their monthly installments, buyers may make
additional payments or switch over to a biweekly home loan term. The biweekly
term let the buyers to separate their monthly payments in half and pay them
every other week.
Buyers end up making 26 payments since there are 52 weeks in
a year, which adds up to 13 monthly installments. Along the process of
obtaining equity, this extra installment per year speeds up. However, to set up
biweekly payments, there is a fee.
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