Whether you are purchasing or refinancing a home, you may want to explore a 15 year term as well. You are have a chose of a 30, 20, 15 or 10 year term to finance your loan amount, short the term higher the payment. With rates at still an all time low, you may be surprised that your budget can handle a shorter term loan when purchasing or refinancing a home.
With rates on a 15 year fix term in the mid to high 2% range, you can not finance any larger amount of money (like a mortgage) any where else at that rate, 30 year terms are also at a mid 3% range. We are used to having a 30 year term mortgage on a home loan (fix rate only, no adjustable rates here) because the monthly payment is at it’s lowest verses a 15 year. Lets discuss the payment options of the different terms and see what the overall payment may be.
The difference between the terms are the monthly mortgage payment, from high to low. How this breaks down is: do you wish to finance your home loan over a longer period of time or a short period of time? Benefits of a short term mortgage loan:
- Pay less interest of the life of the loan
- Build equity faster in your home
- Will have your home free and clear sooner
- Interest on the borrowed funds is lower
- Can set yourself on a bi-weekly payment and cut the term of the loan down even more
I know the payment on a shorter term is higher than a 30 year, but the longer term effect that a 15 year brings is greater than a 30 year one. I have presented the different payment options in 2012 to all my clients and they were surprised that they could handle a 15 year term, because a car was coming up free and clear soon, credit cards were being paid off, the biggest on was they were paying just as much in rent payment. Yes, having a longer term does give you the breathing room on the payment, but image 15 years into that 30 year note, you would have been making that last mortgage payment. We all get or got excited when your wrote that last check to pay off a car, that feeling will be there with that last mortgage check, 10 fold.
If you are thinking about purchasing or refinancing a home in 2013, please do not hesitate to contact me to explore the different term options on a home loan.