- 15-Year Term: has the highest monthly payments because the loan is shorter. You build equity faster and the interest rate is usually lower. If you can afford higher payments and want to build equity quickly, this may be the best choice.
- 30-Year Term: you can qualify for a larger loan amount with a 30-year term than with a 15-year term. Interest rates may be higher and you pay more interest over time. If you don’t plan to move and the interest rates are fair when you sign the loan, this may be a good choice. This is the easiest loan term to qualify for.
- 40-Year Amortizing Loan: more lenders are now offering 40-year loans. These loans help reduce monthly payments by stretching out the time that you have to pay the money back. However, even though the loan amortizes over 40 years, which means a lower monthly payment, there is a balloon payment due after 30 years. In other words, if you do not refinance the loan or sell your home, after 30 years you will be required to pay the remaining balance all at once. The drawback is that 40-year loans cost more in interest and it takes longer to build equity.
| A fixed rate mortgage has a fixed interest rate for the term of the loan. This means your mortgage payments never change. The most common types of fixed rate mortgages are 15, 30, and 40 year fixed rate mortgages. Because your interest rate is fixed for longer, the interest rate can be higher than other types of mortgages. But you have the security of knowing that your payments will not go up. If you plan to keep your home for a long time, this mortgage will likely save you money. $150,000 loan comparison
The EverydayMoney Mortgage Tool can help you better understand different fixed rate mortgages. | |