Many homeowners obsess over interest rates when refinancing their mortgage. There are other important factors that affect your monthly payment amount; the term length of the loan is one important factor. Here is all you need to know about mortgage term lengths. An important consideration to make when choosing a mortgage is selecting the right term length. Term lengths range from one year to as much as forty years. The most common choices are fifteen and thirty year mortgages. The term length is important because it not only sets the length of time you have to pay back the loan, but it sets the amount of money you will pay the lender in interest. The term length is what sets a dollar amount to your interest rate; this also impacts how much of your monthly mortgage payment goes to equity in your home. If you choose a mortgage with a longer term length you are going to pay more interest. The advantage of a longer term length is that your monthly payment will be much lower. Lower payments are a good reason to select a long term length; however, choosing this option will cost you much more over the course of the loan. Interest rates are an important factor to consider when shopping for a mortgage; however, you need to look at the big picture and factor in all fees including the total dollar amount you pay to the lender for the loan. Many homeowners refinancing their mortgages choose fifteen year term lengths; a term length of fifteen years results in a higher monthly payment. The advantage of this higher monthly payment is that you build equity in your home at a much faster rate and fewer of your mortgage payment dollars go into the lenders pocket. When deciding on a term length for your new mortgage, take a moment to consider your long term financial goals and plan accordingly. To learn more about mortgages and how to avoid common mistakes sign up for a free mortgage guidebook. |
