Buying a new home is a really important decision for almost all of us. But unfortunately, we all have to go through the process of finding the right mortgage before buying our dream house. Finding the right mortgage, however, depends on a number of different factors like the interest rate, mortgage term and your budget.
No matter which mortgage option you choose, you do have to pay back a small amount of your mortgage to the lender every month. This small amount is a portion of the Principal (amount that you have borrowed) and the interest rate for that month. Usually, the lenders use an amortization formula to create your payment schedule that breaks down this monthly mortgage payment into paying off the Principal and the interest rate.
However, the length or duration of your loan mainly determines how much amount you will be paying each month. It is important, therefore, that you choose your mortgage duration wisely. You should be aware of all the possible options like different mortgage durations/terms available, their respective interest rates, payment methods, mortgage types (fixed-rate or adjustable-rate) and so on in order to make a good and informed decision.
How long a Mortgage is borrowed for is essentially known as “Mortgage Duration” or “Mortgage term”. Standard mortgage term in United States is 25 years, but you can get a Mortgage Term that lasts between 6 months to 40 years depending on your financial circumstances. You can also call us at Affiliated Mortgage, a top mortgage lender in rapid city, and amongst top mortgage companies in Fargo.
Generally, we divide the Mortgage Terms into two categories
Short Term Mortgage
A Mortgage duration of less than 20 years is referred to as Short-term Mortgage. This mortgage plan makes you pay more money each month but ultimately lets you pay off the mortgage sooner. Getting a short-term mortgage saves you quite a lot of money in the longer run as the interest rate is charged much less on shorter-term mortgages.
Long Term Mortgage
Mortgage term that is greater than 20 years is referred to as long-term Mortgage. This mortgage term costs you less payment per month but you will be paying off a much larger amount in the longer run. In the long-term mortgages, you have to pay comparatively a much greater amount of the interest rate over time.
Whether you are a first-time home buyer or a refinancing home owner, your Mortgage term should be selected in accordance to your financial plan. Analyze and decide how much mortgage payment you can afford monthly before you start looking for loan options.
Try to look at the broader picture before finalizing your mortgage plan. If you are opting for an adjustable-rate mortgage and the interest rate goes up in future, your short-term mortgage monthly payments will increase more so make sure that you consider such factors before making any final decisions.
Decide for how long you want to pay your mortgage. For example, if you want to own your house before your retirement and you are retiring in 15 years, then you should choose a Mortgage term of 15-years if you can afford it.
Calculating Total Amounts for Different Mortgage Terms
Use Mortgage calculators to find out the overall payment and the monthly mortgage payments of different mortgage terms. It will give you a better idea of your desired mortgage duration and its pros and cons.
Discuss your financial circumstances with your lender so that you can come up with a customized mortgage term that best fits your budget.
It is important that you don’t forget other financial goals while choosing your mortgage term like student-loans, college tuition savings for your kids, credit card payments and your retirement. Paying less interest rate and shortening your mortgage term is a good thing but make sure that you can afford your monthly payments and don’t up in other debts.
The best option would be to completely customize your mortgage term according to your financial plan and monthly income.
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