As you prepare to buy a house, one of the main steps you will have to take involves getting a loan to complete the deal. There are many types of mortgage loans available, and one of the decisions you will have to make is the length of the loan. A shorter-term loan may result in higher monthly payments, but it could also offer some great benefits. Here are three reasons you may want to consider choosing a shorter-term mortgage loan.
The interest rate will be lower
As of 2015, interest rates on 15-year loans were around 0.69% lower than the rates on 30-year loans. The reason this is important is because of the difference the interest rate makes on your mortgage payments and the total amount you will pay for the entire loan. If you want to save the most money on your loan, it would be beneficial to consider a shorter-term loan. In addition, you could save even more money by purchasing points. Points must be paid up front and are usually equal to 1% of your loan amount, but they will decrease your interest rate by 0.25%.
You will pay off the loan faster
The speed at which you can repay the loan may also be a factor you are concerned with, and this is often more of a factor for people who are older. For example, if you are 30 years old, getting a 30-year mortgage might not be so bad, because it would be paid off by the time you are 60. On the other hand, if you are 45 years old, a 30-year mortgage would last until you are 75. In this case, you would be paying your mortgage after the time you retired, most likely.
You will pay a lot less overall
One of the greatest benefits of choosing a 15-year loan over a 30-year loan is the difference in how much you will pay for the entire loan. For example, by using a loan calculator you can determine the differences in the amount you would pay overall for a $200,000 house:
- 30-year loan with a 4% interest rate – You would pay $343,739 in all.
- 15-year loan with a 3.5% interest rate – You would pay $257,357 in all.
Choosing a shorter-term loan will result in higher monthly payments, but it will also offer a lot of great benefits. To learn more about loan options and rates, contact a mortgage lender today.