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If you are shopping for a mortgage, you have multiple options when it comes to your loan term. You can typically choose a term length ranging anywhere from 10 to 30 years. There are several pros and cons to a 30-year mortgage.
When you apply for a mortgage, you have the option to take out a long- or short-term mortgage. The longer the term, the lower your monthly mortgage payments will be because you have a much longer amount of time to repay the loan amount.
The 30-year fixed-rate mortgage is perhaps one of the more popular mortgage products anong borrowers simply because the monthly mortgage payments that come with them are more easily fit within the average budget. The lower payments is what makes these types of home loans more attractive among homebuyers, especially first-timers.
Keep in mind that the interest portion you pay on a 30-year fixed-rate mortgage will be higher compared to a shorter-term home loan. However, the lower monthly mortgage payments make it possible for many buyers to get into the real estate market.
The longer your loan term is, the lower your monthly payment will be. You may find it easier to qualify for a 30-year loan if you have a low income. The amortization schedule will be set up so that your monthly payment pays all of the interest due on your loan monthly, then the rest to principal. Over time, more and more of your monthly payment goes to principal.
A 30-year loan can also be beneficial if you’re buying a home in an area with a high cost of living. The maximum loan limit for many kinds of loans fluctuates based on county or zip code. Since you can spread payments out over 30 years, this makes a home in a nice neighborhood more affordable month to month. If your financial situation improves, you can pay off your mortgage early with no prepayment penalty.
The longer your loan term is, the more you’ll pay in interest. Depending on your interest rate, you could end up paying more in mortgage interest than the actual principal over the life of the loan. It will take longer for your principal and interest payments to balance out, and you’ll find it harder to refinance for the better unless mortgage rate trends drop significantly.
Another expense you may face with your 30-year mortgage is a requirement to buy private mortgage insurance (PMI) if you don’t have a 20% down payment. However, as time goes by and you build equity, this requirement can drop off. Depending on mortgage and refinance rates, you might be able to refinance to get rid of PMI and come out ahead.
If you are shopping for a home, regardless of your credit score, you’ll probably be shown mortgage rates for a 30-year term as one of your loan options. Depending on the interest rate offered, this could be your best bet.
If you are a first-time homebuyer with less than perfect credit or a low down payment, the longer term could be perfect to keep your monthly payments within your budget.
If you already have a home loan but are struggling with a high monthly payment, it could make sense to pay off your current mortgage and refinance at a lower rate with a new home loan.
There is no one-size-fits-all loan program. It is important to discuss the details of your current financial situation with a qualified Loan Officer who can advise you about all of your options available.
Now is a great time for looking into a 30-year fixed rate mortgage. You can use our free Instant Rate Quote tool and Rate Tracker to find out how much you could be saving every month or over the life of your loan.
Do you have questions about mortgages and the home loan process? Or would you like more information on how to find a home and realize your dreams of homeownership? If so, Sammamish Mortgage can help. We are a local mortgage company from Bellevue, Washington, serving the entire state, as well as Oregon, Idaho, and Colorado. We offer many mortgage programs and online financing options to buyers all over the Pacific Northwest and have been in the business of doing so since 1992. Contact us today with any questions you have about mortgages.