Questions to Ask Before Choosing a Home Mortgage Term

A lot of decisions go into getting a mortgage loan. For example, you have to choose between a fixed rate or an adjustable rate. Additionally, there are various mortgage loan programs available to you, such as conventional loan, an FHA loan or a VA loan.

These aren’t even  the only decisions to wonder. Mortgage lenders offer multiple home loans, including 30-year, 20-year and 15-year terms. Longer terms result in lower monthly payments, yet you’ll pay more interest over the life of the loan. Shorter terms, on the other hand, increase your mortgage payment, yet allow you to pay off the loan sooner.

Choosing the right mortgage term can be a difficult decision. However, if you ask yourself these four questions, you’re in a better position to make the right decision.

1. How much can I afford to spend each month?
Closely evaluate your budget to determine how much you can comfortably spend on your mortgage payment each month. Additionally, speak with the bank and ask your broker to calculate your mortgage payment under different terms.
Based on your loan amount, interest rate, taxes and insurance, your mortgage lender can provide a pretty accurate estimate of your mortgage payment with a 30-year, 20-year or 15-year mortgage term. Thus, you know what to expect before committing to a term.

2. Am I refinancing?
A mortgage refinancing can lower your mortgage rate and payment; however, refinancing creates an entirely new mortgage loan. And with a new mortgage loan comes the option of financing your house for an additional 30 years.
Between a lower mortgage rate and stretching the loan term, your monthly payment can drop considerably. This might be good news for your wallet. However, a new 30-year mortgage can add years to your original loan term.
If you’re already years into paying down your mortgage, refinancing into a 15-year or a 20-year mortgage might be a better move financially. You can enjoy the benefits of a lower rate, yet stay on target with your original payoff date.

3. Am I a first-time homebuyer?
Buying a house can greatly increase your monthly housing expense, and there’s typically an adjustment period with new purchases.
As a first-time homebuyer, you can choose a term that’s best for your budget. However, even if you can manage the payment under a shorter term, there are sound reasons to stretch your term as long as possible to acquire the lowest possible monthly payment.
This serves as a precaution to ensure that you’re able to handle your payment. There is nothing scarier than getting a 15-year mortgage, and then realizing that you can’t afford the payment.
Besides, even if you opt for a 30-year term, there’s the option of paying off your mortgage sooner. You can make an extra mortgage payment a year, or add to your principal payment each month.

4. Am I close to retirement?
A mortgage is easily one of the biggest monthly expenses for most home owners. If you’re retiring soon, getting rid of this debt prior to leaving the workforce can stretch your retirement dollars. This is especially important if you anticipate a drop in income after retiring. Therefore, whether you’re buying or refinancing, consider the age at which you plan to retire.
For example, someone buying or refinancing in his/her 20s or 30s has plenty of time to plan for retirement; therefore, he/she has the luxury of paying off his home over 30 years. However, an older person with less than 20 years left on the job may not want to drag his mortgage into his/her retirement years; at which time a 15-year or a 20-year mortgage can help him/her become debt-free before retirement.

Bottom Line
A shorter mortgage term pays off your home sooner, reduces how much you pay in interest and builds home equity faster. However, a higher mortgage payment can also cause payment problems. Therefore, only select a shorter term if you’re absolutely confident in your ability to consistently manage higher home loan payments. Visit Majestic Home Loan at, or call us at 1-877-546-2145 and speak to one of our licenesed loan officers for answers to all these questions and more. 

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