While getting the lowest interest is a common goal for mortgage borrowers, it is also important to mind the loan term and time you will need to repay the loan. Most lenders offer 15- and 30-year loans, but there are other options like 10-, 20-, and 40-year mortgages.
Your choice of loan term will not only affect your interest rate and monthly payment, but also overall interest you will have to pay over the life of the mortgage.
Interest Costs and Payments
In most cases, shorter term mortgages have lower interest costs, but have higher monthly payments. This is mainly because you can own the home faster. Longer loan terms, on the other hand, have higher overall interest cost. Keep in mind, however, that there are still some loan specifics that can affect the total amount of interest, as well as your monthly payment.
Shorter Terms Have an Edge
Primary Residential Mortgage, Inc. noted that it’s a good idea to get a fixed rate home mortgage with a shorter term. It may require you to pay higher monthly payments, but it will help you save more money overall. This means that you are paying the interest and borrowing the loan for a shorter amount of time. Shorter term loans, furthermore, usually have lower interest rate because they carry less risk for lenders.
Loan Shopping Tips
If you’re considering buying a new home and getting a loan, the following tips can be beneficial:
- Compare loan quotes or estimates from at least three lenders. Note that rates can change when you first submit an application or consult a lender.
- Choose the kind of mortgage the suits your financial situation. If two kinds of loan suit you, ask lenders for quotes you can compare.
- When you have quotes from multiple lenders, you can negotiate better. If one lender offers a better rate, you can ask another lender to match it.
Getting a mortgage can be overwhelming at first. It is best to educate yourself about the loan terms and requirements, as well as the things you can do to become an attractive buyer.