by Charlotte Wood
(last updated February 21, 2009)
So much goes into picking the right mortgage and there are so many things to consider and take into account. One of those things is the mortgage term, or how long you actually make payments on your house. Once you understand the basics however, picking the right mortgage term isn't difficult and will result in a comfortable policy for you.
There are three terms from which you can choose: the fifteen-year term, the twenty-year term, and the thirty-year term, all of which have their pros and cons. When you're choosing a term, you obviously want to go for the shortest term for which you can qualify (and you should also feel comfortable with whatever term you choose). The quicker you can pay off your house the better, but if your circumstances and finances don't work well with a shorter term then it's okay for you to sign a longer-term loan.
What's really important in the loan term is not necessarily a difference in the amounts of your monthly payments, because those don't really change much from the fifteen-year to the thirty-year mortgage, but where it really shows the savings is in the interest. The longer you have the loan the more money you pay in interest and that's where the difference is noticeable and significant. Once again, if you can do the shorter term, do! If however, you don't qualify or don't feel comfortable with a shorter mortgage term, at least try to make additional principal payments throughout the year; this will, over time, really make a difference in how long you actually have the loan.
Probably picking the term of your mortgage will be one of the easiest parts about your mortgage application and closing process. It's simple to understand and easy to fit into whatever financial situation you may have. If you can and qualify, choose the shorter term. If you can't, go with the longer term but make additional payments where you can. The sooner you can pay off your loan the better!
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