The usual loan term for borrowers is a 30-year mortgage on their purchased property. However, it is worth noting that a shorter term may save the buyer thousands of dollars.
For example, a $250,000 loan at a fixed interest rate of 4.5 per cent would yield a monthly payment of $1,912 for a 15-year term. This gives a total of $344,247 for 15 years. The total payment for 30 years climbs to $456,017 even with lower monthly payments of $1,276. That marks a savings difference of $111,770.
Lenders also typically offer lower interest rates for 15-year home loans since these are considered less risky. Since 15-year mortgage loans carry less risk for the lender, borrowers usually get a lower interest rate for the shorter term. Homeowners also build equity faster on a property with less loan interest that will also be paid in half the time of a 30-year loan.
While savings may also be bigger for shorter-term loans, higher monthly payments also mean less cash available for immediate savings, car payments, and other bills.
Another option for borrowers who want to build equity on their property but cannot afford the bigger monthly payments of a 15-year mortgage is to take out a 30-year loan term with the choice of adding more cash on top of the monthly payments. It is important to check with lenders first to see if they allow additional principal payments on a longer-term mortgage.
It can be confusing to know whether to get a variable rate or fixed rate mortgage, and what features are important. That's why it's important to not only check the right rates, but make sure that you're getting the right features in your home loan. Get help choosing the right home loan