Choosing A Mortgage Term

Home ownership is the ultimate goal for most working people. The major decisions involve how much to spend on the home of choice and the length of time to pay back the loan. The length of time to pay back is the Mortgage Term.

Mortgage Terms vary and in today's highly competitive market, real estate specialists are very creative in customizing packages for their clients. Deciding what is suitable for you can be difficult and requires the guidance of an experienced mortgage specialist.

Some of the things to consider before choosing a mortgage term include:

  • How long do you plan to live in the house
  • How much money can you afford for a mortgage each month on your current salary that will leave
  • enough to care for your family leaving enough over for savings, retirement or emergencies
  • How secure is your present job
  • How does the pay-off date for your mortgage fit in with your financial goals
  • How many children to put through college
  • What other high cost investment will you need to make in the near future e.g. a new car

Below is some helpful information to assist you in making a decision.

Types of Mortgage Terms available include Long Term and Short Term.

Long Term Mortgage: Formerly a 30 year plan was thought to be the ultimate as it provided a low interest rate, with low monthly payments and time to refinance to accommodate changes which may occur along the way. Choosing this would leave you more disposable income which you could use to lock into a savings account or to take care of emergencies.

Because the term is for a longer period it is easier to get approved and offers the choice of a more expensive home. Another benefit for long term mortgage is the fixed interest rate which does not change throughout the term period. In this season of low interest rates the shrewd mortgage specialist can secure you a significantly low rate for the life of the loan.

Short Term Mortgage of10- 15 -20 years. This too was widely recommended with the premise that you could easily renew when the term ended. This too has many benefits as well, among them the opportunity to lock in on a low interest rate offered and build up your home equity faster.

The disadvantage to this is a higher monthly payment, however if that is taken into consideration from the beginning it may prove beneficial. Also low interest rates will not last forever and at the end of the term the rate could possibly increase. This may cause added difficulties along with the already high monthly payments if your financial situation has changed.

Often adjustable mortgage rates (ARM) are used in short term mortgages. These though attractive at first are based on certain indexes which include treasury bills, or Federal Housing Finance Board Average mortgage rates. As these fluctuate your mortgage rate will adjust to compensate.

Both Long Term Mortgage and Short Term offer the home owner the choice of refinancing should a change in financial status occur. Knowing the pros and cons of both, the option is yours which of the two will best suit you, your family and style of living.