Getting A Mortgage Is a Big Decision
As if deciding to get a mortgage or even refinance a mortgage wasn’t a big enough decision, there are many things to consider when it comes to the length of the mortgage loan, too. Do you want a lower monthly payment? Is paying less interest over the life of the loan your goal?
Standard Mortgage Terms
As we have discussed in this blog post about Austin mortgage terms before, the most common mortgage term is for 30 years, but there are also terms of 10, 15, 20 and 25 years. While you can typically get a lower interest rate with a shorter term mortgage loan, the advantages of one over the other really comes down to short and long term goals.
Deciding on your Austin Mortgage Term: Cash versus Investment
- If you are a young couple, it may make more sense to take the longer term mortgage loan and have a lower monthly payment. For homeowners under 40 years old, saving for retirement and funding children’s educations requires having more cash on hand. If you have credit card debt, that should be your priority for paying down debt, not your mortgage.
- For those closer to retirement, paying down the mortgage with a shorter term loan and higher monthly payment makes a lot more sense. Think of it as an investment with a guaranteed return.
Refinance your Austin Home Loan for a Lower Interest Rate
Recent numbers from Freddie Mac show that many homeowners are choosing to refinance 30 and 20 year mortgage loans and replace them with a 15 year mortgage. While it may not lower your monthly house payment, it can significantly reduce the amount of interest you will pay over the life of the mortgage loan.
An Example of Mortgage Refinancing from Kiplinger.com:
If you refinance a $200,000 mortgage at 4.3% for 30 years, your monthly principal-and-interest payments will be $990, and you’ll pay $156,307 in interest over the life of the loan. If you choose a 15-year loan at the going rate of 3.7%, your payments will be $1,449 a month — but you’ll pay only $60,908 in interest. (Source: Downsize your Mortgage?)
Think of all the things you could do with the $95,399 you saved!
It’s a very good idea to discuss the benefits of one mortgage term over the other with your home mortgage loan lender.