Which Home Loans Are The Best?

Choosing the right home loan can be challenging as there are multiple options to choose from. Most home loans are either 15 year or 30 year terms, but those are not your only options.  Now before you go looking for the lowest rate on your purchase mortgage or refinance, you’ll need to decide on (or at least narrow down) a mortgage term that is right for you. By “mortgage term,” I mean the duration of your mortgage. Why does that matter? Well, your mortgage payments and the amount of interest you pay will be determined, in large part, by the term of your mortgage. In this post, we will show you your options and the pros and cons of each term length.



The Standard 30 Year Home Loan

The 30-year mortgage is one of the most popular options when it comes to borrowing money to buy a home. I think the most appealing part of a 30-year mortgage is the fact that you can get a lower monthly payment and therefore afford more house than you could with a shorter-term loan. At the same time, not all 30-year mortgages are fixed for 30-years. That’s right, there are a ton of mortgages based on a 30-year payoff schedule that can adjust monthly or annually.

A common example would be the 5/1 adjustable-rate mortgage, which is amortized over 30 years, but adjustable after just five.

It’s fixed for the first five years, and adjustable for the remaining 25, but still a 30-year term loan.

Same goes for a 7/1 or a 10/1 ARM, except their fixed period is seven or 10 years, respectively, before going adjustable.


The 15 Year Home Loan Is Also Very Common

The 15-year mortgage is not as popular as the 30-year mortgage, primarily because your monthly payment is significantly higher than on a 30-year mortgage. Also, we live in the age of “how big of a payment can I afford?”

While the payment amount should be affordable, it shouldn’t be the only determining factor of a purchase. What most people fail to realize is that choosing a 15-year mortgage term over a 30-year mortgage term results in a long-term monetary savings benefit that can easily run in the tens of thousands of dollars.


What other Home Loans are available?

The most common home loan terms are 30 and 15 year loans, but those aren’t your only options. There are plenty of other options, including 10 year, 20 year, 25 year, 40 year, and even five-year terms.

Yes, you could pay your mortgage off in just 10 years or stretch it out to 40 years if you need a little more time. Just make sure you look in to all your options before jumping into your next home loan.


The “Real” Average Home Loan Term

One thing to remember is that most people only hold onto their mortgages for about seven years.  This is a result of either selling the home and moving on, or refinancing the existing mortgage to take advantage of lower mortgage rates, or to get cash out.

What we are trying to say is that you should really think about your personal situation. Is this purchase going to be your last for the next 30 years, or does your life demand movement and therefore change?

Don’t pick a 20-year over a 30-year term if the rate isn’t significantly better.

And don’t go after a 15-year term if you think you’ll have a tough time making the larger payments, or if you think you may move in just a few years.

In Conclusion

The longer the term, the lower the mortgage payment, but the more interest you’ll pay and the longer it will take to build home equity. Take your time, make the right choices, and make sure you can live with those choices, because getting in too deep isn’t hard to do. No matter what kind of loan gets you into a home, do your homework beforehand and make sure there are no details about the mortgage loan you don’t understand.

If you think home ownership is for you, contact Teresa Parker, Loan Officer at Cunningham & Company Mortgage BankersNMLS # 2024 at (919) 697-2598 or [email protected]. She can help you decide if it makes financial sense, and how to get started.

Cunningham Mortgage & Real Estate Experts are partners.  We help you find the home of your dreams and help you navigate through the home buying process and Cunningham Mortgage expertly helps you through the complicated lending process.

To see Real Estate Experts’ newest listings, click here, and feel free to give us a call anytime at 919-813-6449 or send us an email to  [email protected].

You may also want to read the following related posts:  Home Loan Preapproval vs. Home Loan PrequalificationRenting vs Buying – Which Is Better For You?, or Does a 0.5% Rise in Interest Rates Equal a 5% Rise in Price?