Learning about home mortgage loans
Get to know the best way to pay a home mortgage loan
Many people are quick on making mortgage loans without thinking what payment terms they will choose in paying their debts. You might be asked if you can have the right to make a choice on the home mortgage loan payment term. The answer is yes, as long as the lender will agree to your proposed payment terms.
Mortgage loans payment terms usually range from ten years to thirty years, depending on the person how comfortable one would be in paying their payables with the terms stated. It is important to know that the difference in the payment terms lies on the amount of interest charged to the loaned amount and the monthly payments.
Choosing longer payment terms might entail high mortgage loans interest rates but your burden of paying high amounts of monthly payments will be alleviated. The opposite happens for shorter payment periods. Shorter payment terms, generally, will let you enjoy lower interest rates but you will pay high amounts in monthly payments.
A good example would be: if one chooses a 30-year fixed payment term for a $300,000 mortgage loan at 7% interest rate, your payments would amount to $1,995 monthly. Whereas, if you choose a 15-year payment plan for the same amount at 6.75% interest rate, monthly payments would bloat to $2,654. Imagine, there will be an increase of about 30%! This increase in monthly payments equates to a large amount of money. Due care and analysis is needed when choosing the best home mortgage loan payment term.
If we use the same numbers as an example to show how interest rates differ with payment terms, there would be a significant difference in the money that you pay monthly. Along the same line, you pay more than $400,000 in interest money when you choose a 30-year loan payment term, while you pay only over $175,000 with a payment term of 15 years.
You may again ask why is it that you pay higher when you choose a shorter payment period than a longer payment term, even though the interest rates applied are lower. A quick answer to the question is that a payment term with longer periods allows it to spread your payments to many months, allowing lower monthly payments. It would be different when you pay with shorter payment periods where it is essential to increase the monthly payment terms to meet the burden imposed by the monthly loan payables and the demand of paying the interest at a shorter period of time.
As a conclusion, choosing the best home mortgage loan payment term really boils down to the personal preference of the person in meeting the monthly payment responsibility or the interest rates place on the mortgage loan. Whatever is more convenient to the individual.