The terms of your mortgage will significantly affect your financial stability for decades to come. For example, a mortgage you can afford will help you build up equity that can be accessed as needed in the years to come. A mortgage you can't afford may cost you tens of thousands of dollars in losses when you lose your home or have to sell at a deficit.
Determine what you can afford to pay as monthly payments each month and set a limit for yourself. Your interest rate and credit score will affect what you have to pay, but nothing affects your monthly payment amount more than the length of your loan term. Don't try to figure out what term length to choose until you know what you can afford. Review the following loan term options and discuss each of them with your lender:
10 Year MortgageThis loan type is fairly uncommon but is still sometimes used for those who have an extremely high income and want to pay off their house as quickly as possible. The payments for a 10 year mortgage are very high, but could potentially save you hundrends of thousands of interest dollars.
15 Year MortgageThis is the most common "short" mortgage term length. Taking out a 15 year mortgage is beneficial because the associated interest rates are typically lower than interest rates on other loans. You'll also save a significant amount of money by having reduced interest costs when compared to mortgages with higher term lengths.
20 Year MortgageThe 20 year mortgage has a lower interest rate than the 30 or 40 year mortgage, but has higher monthly payments. The 20 year mortgage is a great option for homeowners who wish to refinance but do not want to have another 30 year mortgage.
30 Year MortgageOverall, this is the most common mortgage for American homebuyers as it's highly affordable. Mortgage rates tend to be reasonably low and monthly payment amounts tend to fit within the income brackets of most borrowers.
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