Should You Apply for a Short Term Mortgage?
- Date: 2007-01-23 - Word Count: 467
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The traditional home loan market was all about the 30 year mortgage. These days, shorter term loans are available, but should you get one?
The mortgage market was traditionally as stoic a financial market as you could find. Things were handled in one or two ways and that was all there was to it. If you could not find a financing solution that fit the mortgage mode, to bad for you!
In these modern times, the mortgage industry has evolved dramatically. The various loan packages available are vast and there is practically something for anyone. Have horrible credit? There are lenders that cater just to you. Have no money to put down on a property? There are banks that would be more than happy to lend you a boatload of cash. With all the options available, people often fail to consider a key issue - the term of the loan.
The term simply refers to how long it will take to pay off the loan. The traditional 30 year fixed mortgage had a term of 360 months or 30 years. While this is still a common mortgage used by many, 30 years is a long time to be making payments. If you are looking for financing, you might be wise to consider a shorter term loan of 15 or 10 years.
The first reason to consider a shorter term loan is the interest rate. The lender is taking less of a risk on you. You will be paying back the money quicker. As a result, you should be able to get a lower interest rate on the loan. Many people mistakenly think the rate will be higher, but it should definitely be lower than a 30 year version. How low? It depends on the lender, but a quarter to half a percent is common.
The second reason to go short is the savings. You will pay much less total interest on the loan. Why? You are paying more of the principal off each month. It may sound obvious, but the difference between a 30 and 15 year term is usually tens of thousands of dollars. If you can afford the increased monthly payments, it can be a huge savings.
The obvious issue with a shorter term loan is the monthly payment. Yes, you are going to pay more. The amount, however, may surprise you. Remember, you are getting a break on the interest rate and it can amount to a lot. You will have to run the calculations on your specific loan, but a general guideline is you will pay a couple hundred dollars more for every 100,000 borrowed. Don't rely on this, however. Do the calculation first to figure out the exact numbers for your situation.
Dan Lewis is with Great Western Mortgage - providing San Diego home loans.
The mortgage market was traditionally as stoic a financial market as you could find. Things were handled in one or two ways and that was all there was to it. If you could not find a financing solution that fit the mortgage mode, to bad for you!
In these modern times, the mortgage industry has evolved dramatically. The various loan packages available are vast and there is practically something for anyone. Have horrible credit? There are lenders that cater just to you. Have no money to put down on a property? There are banks that would be more than happy to lend you a boatload of cash. With all the options available, people often fail to consider a key issue - the term of the loan.
The term simply refers to how long it will take to pay off the loan. The traditional 30 year fixed mortgage had a term of 360 months or 30 years. While this is still a common mortgage used by many, 30 years is a long time to be making payments. If you are looking for financing, you might be wise to consider a shorter term loan of 15 or 10 years.
The first reason to consider a shorter term loan is the interest rate. The lender is taking less of a risk on you. You will be paying back the money quicker. As a result, you should be able to get a lower interest rate on the loan. Many people mistakenly think the rate will be higher, but it should definitely be lower than a 30 year version. How low? It depends on the lender, but a quarter to half a percent is common.
The second reason to go short is the savings. You will pay much less total interest on the loan. Why? You are paying more of the principal off each month. It may sound obvious, but the difference between a 30 and 15 year term is usually tens of thousands of dollars. If you can afford the increased monthly payments, it can be a huge savings.
The obvious issue with a shorter term loan is the monthly payment. Yes, you are going to pay more. The amount, however, may surprise you. Remember, you are getting a break on the interest rate and it can amount to a lot. You will have to run the calculations on your specific loan, but a general guideline is you will pay a couple hundred dollars more for every 100,000 borrowed. Don't rely on this, however. Do the calculation first to figure out the exact numbers for your situation.
Dan Lewis is with Great Western Mortgage - providing San Diego home loans.
Related Tags: loan, mortgage, home, term, interest rate, fixed, short, monthly payment
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