Mortgage Term - What's the Best for You?

There are so many decisions to make when shopping for a home mortgage loan. Should you choose a fixed or adjustable rate? Should you pay interest-only for a period of time? How much money should you put down? One of the simpler, but absolutely crucial decisions that will confront you is the choice of term. How long a mortgage is right for you?

While the most popular terms are still 15- or 30-years, you can find a range of variations, including 10-, 20-, 25-, or even 40-year home loans. In order to find the perfect match, ask yourself the following questions:

1. How long do I plan to stay in the house?
2. How much money can I afford to pay for my mortgage each month and still have enough to save for retirement and other important financial matters?
3. How does the pay-off date fit in with my financial goals and dreams?

Advantages of 30-Year Mortgages

Like your father's Oldsmobile, the 30-year mortgage is the granddaddy of home loans. It will have lower monthly payments than a comparable shorter-term loan. As a result, you'll have more disposal income for your living expenses, or to funnel towards saving for retirement, college tuition, or whatever goals are important to you. In addition, when you have access to extra cash, you can use it to pay down the balance of your mortgage, which will automatically shorten the term of your loan. Because the term is longer, it's often easier to get approval, and you may be able to afford a larger house. If you plan to stay in the home for a long time, the longer term makes sense.

Advantages of 15-Year Mortgages

This mortgage can be shorter and sweeter than its longer counterpart. You can snag a lower interest rate, and build up your home equity more rapidly. However, your monthly payment will be higher than its longer-term counterpart. And a huge perk is that you'll pay less interest over the life of the loan, which ultimately will result in more money in your pocket.

Whichever term you choose, you always have the option to do a home refinancing if your financial situation changes. If there's too much pressure meeting your monthly payments on your 15-year loan, you can refinance for a longer term. If interest rates drop, you can take advantage of them by opting for a shorter-term.

The ultimate decision will be based on your cash flow and how you want to spend it, as you work towards the ultimate goal of the American dream: owning your home free and clear.