Finding the Right Mortgage Term

Wondering whether you should choose a 15 year mortgage or a 30 year mortgage and how much of a difference it could actually make in your final mortgage payment? What about a biweekly mortgage? What’s with all the buzz about that? Could it actually shave that much off your total mortgage? If mortgage terms are throwing you for a loop, you’re not alone. Read on for more tips on how to find out which length of mortgage is right for your needs.

Traditionally, the 30 year fixed rate mortgage has been the standard. That doesn’t necessarily mean it’s the right choice for you; however. Lenders are now offering a wide variety of home mortgage loans which are spanning the spectrum. It’s possible now to take advantage of a 15 year mortgage as well as even a 40 year mortgage.

When it comes time to decide which mortgage length is right for you be sure to focus on how much you anticipate your future income to be and how much discipline you want to exercise in paying off the mortgage.

Generally, a shorter mortgage term of less than 30 years is best for those individuals who are interested in saving money by paying less interest over the duration of the loan. With a $100,000 loan at 8% interest you would pay more than $150,000 in interest alone over a 30 year loan.

Switch that; however, to a 15 year fixed rate loan and while the payments will rise by about $200 per month, you will save more than $90,000 in interest throughout the life of the loan and the loan will be paid off 15 years sooner than in the first example.

Now, that is not to say that there are not advantages to a longer term loan. With a longer term loan, you are able to take advantage of lower mortgage payments, which may make it possible for you to buy a house sooner. This also gives you some peace of mind in the event that your income should decrease at some point in the future, a possibility in today’s economy.

It’s also important to keep in mind that you can have the financial security of a longer term mortgage while paying it off sooner and saving on interest with some creative and disciplined financing. One of these options is known as the biweekly mortgage.

This option allows you to make mortgage payments every two weeks instead of the traditional once a month payment. Over the period of just once year, it allows you to make one extra payment. That might not sound like a lot but when you add it up, it can shave quite a bit off a 30 year mortgage as well as your total interest payments.

 
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