One of the important things to focus on when buying a home is getting the best deal on your mortgage. However, mortgages can be complicated. Should you get a 10-year (or 15-year) mortgage or a 30-year mortgage? What’s the difference between a 10-year and 30-year fixed mortgage?Verify my mortgage eligibility (May 11th, 2021)
The difference does not just come down to your monthly payments. Let’s explain how these different types of mortgage work.
30-Year Fixed Mortgage
This is the most common mortgage type, chosen by the vast majority of new homeowners. The long term results in lower monthly payments. Additionally, the payment itself, as well as the mortgage rate, is fixed.
This makes it easy to budget. You know how much you will be paying each month. You don’t have to worry about what the market might do. Additionally, you can easily refinance if you move before the 30 years are up (which in today’s mobile society is now much more common). It lets you buy more than you could afford with a shorter loan term, and frees up funds.Verify my mortgage eligibility (May 11th, 2021)
Other borrowers choose a 10 or 15-year fixed mortgage. The monthly payments are higher, but in the long term a shorter term mortgage will actually cost considerably less than the standard 30 years. Interest rates tend to be lower on these loans, as they are less risky for banks. However, the monthly payments are quite a bit higher. Therefore, you are likely to be approved for a lower amount.
Despite that, the shorter term is actually advantageous if you can afford the higher payments. It’s particularly advantageous if you are within 10 years of retirement. It will help you have the loan paid off when you retire, significantly dropping your housing costs and making it easier to thrive on a fixed income. The interest rates may be fixed or mutable with these shorter loans. The latter can result in monthly payments that change over time. For some people, it’s very helpful to have payments that don’t change, no matter what the market is doing.
However, there are a few other things you might want to take into account.Verify my mortgage eligibility (May 11th, 2021)
Other Factors Affecting your Choice
Some other factors which might make one choice better than the other include:
- Current interest rates. If you aren’t able to repay the 10-year mortgage you will need to refinance. Additionally, if interest rates are currently high, that can be to your benefit. If they are currently low, then a 30-year fixed can be a better deal even if the relative interest rate is higher.
- Your comfort level with the length of the loan and the payments. Some people find a shorter mortgage encourages them to save and enter into good money habits. Others want the lower payments so they can put money into elsewhere, such as a college fund.
- Your long-term plans. How long are you likely to stay in the home you are buying? How old are your kids, if you have any? Are you expecting a windfall which might help you pay off the loan faster?
Choosing the right mortgage can be difficult. It depends on your budget, how much home you want or need, age, and many other circumstances. An expert broker can help you choose the right type and term of mortgage for you. To find out more about how Atlantic Home Mortgage can help you choose the right mortgage type and loan term for you, contact us today.