How to make a decision – Forbes Advisor


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Mortgages come in all shapes and sizes, from low down payment options to large loans. Apart from the type of mortgage you choose, you also have to decide for how long you want to pay off the loan, which is called the mortgage term.

There are many different types of mortgages available to help you buy a home, but the most common ones tend to be for 15 to 30 years. If you want to lower your monthly payments, you may have to increase your home loan to 30 years. A 15 year mortgage may have higher monthly payments, but it cuts the loan term in half, which also lowers the interest you pay.

To determine which type of mortgage is best for you and compare your total costs, simply list the total home value, expected down payment and interest rate below.

Loan summary for 15 years

Monthly payment

total cost

(principal, interest)

(down payment, principal, interest)

Cost per year (excluding down payment, taxes and insurance)

Loan summary for 30 years

Monthly payment

total cost

(principal, interest)

(down payment, principal, interest)

Cost per year (excluding down payment, taxes and insurance)

Disclaimer: These calculations are based on estimates and may not be accurate depending on your lender and personal credit profile.

What is a 30-year mortgage?

When you get a traditional 30-year mortgage, you pay a fixed amount of principal and interest every month, divided by 30 years, or until you sell the house and pay off the mortgage sooner.

What is a 15 year mortgage?

Similar to a 30 year mortgage, you will have a monthly payment based on principal and interest, but divided by 15 years.

15 years against. 30 year mortgage: how to decide

Mortgages for 15 and 30 years can have fixed interest rates and fixed monthly payments over the life of the loan. However, a 15-year mortgage means your home will be paid off in 15 years, not a full 30-year mortgage, provided you make the required minimum monthly payments.

15-year mortgages tend to have a lower interest rate, although in general mortgage rates have remained low for a while. However, the monthly payments on a mortgage are 15 years higher because you pay off the principal faster than on a mortgage with a 30-year maturity.

The choice between them depends on your financial situation, including your credit rating and history, your down payment, and the amount of cash reserves you want to maintain on a monthly basis.

A 15-year mortgage may be better if you have more monthly cash and want to pay off your house faster, for example. Alternatively, a 30-year mortgage may be better for those on a more tight budget or looking to save cash by paying less on the mortgage but for a longer period of time. Long term mortgages can also make more sense if you plan to stay for decades.

Interest rate terms also play an important role in how long you want to stretch your mortgage. For example, if rates are low, it might make sense to lock in that low rate for a longer period and then use your extra monthly money to invest in something else that has a higher return at the time, like stocks or buying investment property. … Whereas if interest rates are high, you may want to get a shorter term mortgage so that you only pay that interest rate for 15 years, not 30 years.

There are also refinancing opportunity from a 30-year mortgage to a 15-year mortgage in the future if your financial situation changes and you want to pay off your home loan faster or lower your interest rate.

Frequently asked questions about mortgages

How does a mortgage work?

Mortgage is secured loan who uses the house as collateral for the lender to provide you with financing. This means that the lender will hold onto your home until the mortgage is paid in full. After closing, you will make monthly payments that cover principal, interest, taxes and insurance. In case of default on mortgage obligations, the bank will have the opportunity to collect the right to buy out the property.

What are the types of mortgages?

There are several common types of mortgages

These include regular loans and giant mortgagewhich are issued by private lenders, but have stricter requirements because they exceed the maximum loan amounts set by the Federal Housing Finance Administration (FHFA).

Potential home buyers can also access federally insured mortgages, including Federal Housing Administration (FHA), United States Department of Agriculture (USDA), U.S. Department of Veterans Affairs (VA) as well as 203 (k) loans… The minimum requirements for these mortgages vary, but they are all designed for low- to middle-income buyers as well as first-time buyers.

In addition to the type of mortgage, borrowers can choose for how long they want to pay off that mortgage, which is called the term of the mortgage. The term of the mortgage is usually 15 or 30 years, meaning you have 15 or 30 years to pay off the loan. For example, let’s say you chose an FHA mortgage for 15 years. Mortgage type – FHA, term – 15 years.

Some lenders offer customized loan terms that allow borrowers to choose a repayment schedule that does not fall within a 15- or 30-year period.

How do I apply for a mortgage?

Mortgages can be obtained through traditional banks and credit unions, as well as through a number of online lenders. TO apply for a mortgage, check your credit profile and if necessary improve your credit rating claim the lowest possible interest rate.

Then compute how much house can you afford, including the amount of the down payment that you can pay. When you are ready to apply, complete the necessary documentation such as proof of income and proof of assets and start purchase at the best prices

Research has shown that borrowers who compare stores receive higher rates than those who turn to the first lender they find. You will want to know what rates they offer, as well as the annual percentage rate (APR), which is the total cost of the loan, including fees. Some lenders may offer lower interest rates but charge higher commissions, which can offset the savings.

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