A new year always brings a lot of goals and tons of resolutions. A popular goal will be to buy your first house, an exciting and terrifying experience. Check out my “One Year As a Homeowner Post” for more. When you’re in the process of shopping around you’ll get different rates for 15, 20, or 30 year mortgages. No one option is better or worse, it simply depends on your own personal situation. Essentially the longer your term, the lower your monthly payment will be. But as the term goes on you’ll also pay more in interest over the life of your loan. Don’t be pressured by your real estate agent or lender, get all options and figure out which loan will work for YOU in the future.
That being said a shorter mortgage term length does save you significantly over time. Below is a guest post from Andy on his recent refinance that he did for his family.
Related Read: How I Saved $67,339 On My House
Three years ago, Nicole and I moved into our forever house. It was love at first sight.
Compared to our previous 1,100 square foot bungalow, this new tri-level home had a bigger yard, an open floor plan and neighbors that became instant friends of ours.
When it came time to choosing the mortgage, we didn’t want our dream home to turn into a nightmare.
After doing some research, our mortgage strategy went something like this …
Mortgage Situations We Avoided:
- Interest-Only Mortgages: These are mortgages where you only make monthly interest payments and the principal of the loan does not decrease. If the principal of the loan never decreases, you are going to paying that mortgage for a LOOOOONG time.
- Adjustable Rate Mortgages (ARM): This is a home loan where the interest rate adjusts after a set period of time (typically 3, 5 or 7 years) and could result in a higher rate than you originally started with. As the interest rates are starting to increase (as of this post), this could be a very dangerous loan to be in if the term of your ARM is about to expire.
- Private Mortgage Insurance (PMI): This insurance protects the mortgage company from your potential default on the loan and is NOT insurance that protects you as the homeowner. If you put less than a 20% down payment on your home, you could have to pay an additional 1% of the mortgage loan value each month to protect your lender. For example, on a $200,000 loan the homeowner could be paying an additional $2,000 per year or $166.67 per month in PMI. That’s A LOT of green!
After we avoided those three money stealing mortgage products, then it came time to discuss whether we’d want to go with a 15-year mortgage or a 30-year mortgage.
5 Reasons We Went With a 15-year Over a 30-year: