Whether you are looking to purchase a home or refinance your existing mortgage a key aspect in the decision making process is the loan term. The most commonly offered terms by lenders is 30, 15 and 10 year amortizations with the 10 and 15 year fixed offered at a lower rate compared to the 30 year fixed. Should you decide on a 10 or 15 year term, your monthly payment would be higher than that of a 30 year fixed however the amount of interest you pay over the term (the true cost or expense of the loan) and the rate in which you build equity in your home will be vastly accelerated when compared to the 30 year fixed.
A 30 year fixed $200,000 mortgage at 4.25% will manifest a monthly payment of $983.88 and $154,196.72 in interest paid over the term.
Compare that to:
A 15 year fixed $200,000 mortgage at 3.375% will manifest a monthly payment of $1,417.52 and $55,153.55 in interest paid over the term.
A 10 year fixed $20,000 mortgage at 3.125% will manifest a monthly payment of $1,942.78 and $33,133.16 in interest paid over the term.
Key factors you should consider when making your decision are:
- What is my disposable monthly income?
- How long do I plan to live in my home?
- Can I save for the future while making my mortgage payment on time each month?
Often times, first time home-buyers or borrowers applying for a mortgage for the first time will prefer a 30 year fixed due to the increased security of the lower payment. As time moves on and the borrower has had more time to assess their personal financial situation and build equity in their home they will then decide to refinance into a lower rate and term thus decreasing the amount of interest paid over the term of their loan without a substantial increase to their monthly payment.
Andy Attary – VP, Sales
(734) 531-1032 | NMLS: 134433
For more information about anything discussed in this article, please contact me. I’d be happy to assist you or put you in touch with someone that can.