Mortgages help make the dream of home ownership come true. When applying for a home loan, you'll be asked to undergo a credit check and provide the lender with proof of income and a detailed financial statement that lists assets and liabilities. In return, and if all criteria meet the bank's standards, you will be on the way toward home-ownership.
Fixed-Rate Mortgage Snapshot
Along the mortgage application path, you'll have some decisions to make. One of those decisions revolves around the type of mortgage you'll utilize. While there are numerous styles of home loans available, in 2017, the 30-year fixed variety accounted for over 90% of the market.
Fixed-rate mortgages owe their immense popularity to predictability. Once you commit to a fixed-rate mortgage, the interest rate is locked in and remains the same for the entire term of your loan. Therefore, you know exactly what your mortgage payment will be for the loan's duration.
15-year vs. 30-year Mortgages
The loan term length is another choice you'll face when selecting the mortgage that best meets your needs. Quite simply, the term is the number of years you'll be given to repay principal and interest. The two most prevalent fixed mortgage terms are 15-year and 30year options.
A 15-year mortgage requires you to pay off the loan in less time than a longer-term mortgage. This means your monthly payments will be higher, but you'll also benefit from a lower interest rate. Another advantage of a 15-year mortgage is that you build equity in your home more quickly, as more of your monthly payments are allocated toward principal.
A 30-year mortgage stretches out the life of the loan while offering you a lower monthly payment than a shorter term agreement. Lower payments allow budgetary room to pursue other financial goals, such as retirement savings or college funding. With higher interest costs, you will receive a larger allowance if you choose to itemize deductions on your federal taxes.
Which Mortgage Term Should You Choose?
The mortgage term you select hinges on your personal circumstances. Home buyers nearing the age of 50 may want to pay off the entire debt prior to retirement at age 65. So, a 15-year term may fit the bill, especially since most mid-careerists typically have higher incomes to meet the payment demands of the shorter term length.
Younger mortgage seekers or first-time buyers might choose a 30-year term, taking on smaller payments while meeting other obligations such as student loans. Additionally, buyers with growing families may need to acquire the most house for their money. A three or four-bedroom home purchase might not be feasible without the availability of a 30-year mortgage term.
The Bottom Line on Mortgage Terms
No one knows your financial condition better than you. Assess your needs, and choose your mortgage term accordingly. The term and payment you select should allow the comfortable enjoyment of your home and a few of the other pleasures life has to offer.