Many homeowners make the mistake of choosing a mortgage with the wrong term length for their situation. Why take out a 30 year mortgage if you only plan on staying in your home for five years? Here are several tips to help you choose the right term length for your situation and save you money in the process. The term length you choose for your mortgage depends on your current financial situation and your long term financial goals. Do you currently need the lowest monthly payment? Is your goal to build equity in your home as quickly as possible? The answers to these questions will help you decide which term length is right for your mortgage loan. Term length is one of the factors that determines payment amount. Mortgages with longer term lengths have lower monthly payments and build equity slowly. Mortgages with shorter term lengths have higher monthly payments and build equity at a much faster rate. The amount of time you plan on staying in your home should also influence your decision; if you only plan on staying in the home for five years consider an interest only mortgage. If you plan on refinancing after five years and know your income will be higher, consider a hybrid mortgage you can refinance at the end of the fixed interest rate period. If you plan on selling the home or refinancing when your financial situation changes, make sure your mortgage does not include a prepayment penalty for early repayment. To learn more about your mortgage options, including common mistakes to avoid, register for a free mortgage guidebook. |
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