Brief Description of a 30 Year Mortgage v. 15 Year Mortgage

Brief Description of a 30 year Mortgage v. 15 year MortgageSummary:
When you are in the process of buying a home and doing your research and shopping mortgage lenders and mortgage bankers you will often find that most of the discussions online focus on interest rates. You will also see lots of advertising about what today’s rate is or where the rates are going. Of course you need to stay informed and educated about the market and what mortgage interest rates are doing especially when you are shopping for a mortgage. The first question most people ask me is “what is my rate?” I feel that the next question should be “what is my term?” However this is rarely the case especially for first time homebuyers. When you hear the word term in the mortgage industry it refers to either a 15 year mortgage (180 months) or a 30 year mortgage (360 months) meaning the length of time you will be financing your home. In my experience most homebuyers ask the same questions over and over “how much do I qualify for?” and “what is my payment”. While these are two extremely important issues, there is an additional one that most first time homebuyers fail to consider and this ends up resulting in a significant waste of money in the long run. The term of your mortgage is extremely critical for a couple of reasons which I will explain next. First of all, it sets the length of the home mortgage loan obligation that you are undertaking. Second, it is a definition of the amount of interest that you are going to pay over the life of your mortgage loan. This is everything when you are buying a home and trying to build equity. The longer the loan the more total interest you will accrue. Whether it is a mortgage loan, car loan, credit card, student loan, etc…. It doesn’t matter. The bottom line is the longer you keep them and pay them the more interest you will pay in the long run. What home mortgage loan borrowers need to understand is if you take out a 30 year loan you are financing your home for 30 years which is 360 months and that is a long time. The trade off to this is that you are going to have smaller monthly payments and that sounds great but you are stretching your obligation to the bank, putting less equity into your home and paying more interest to the bank. At first it sounds great because your mortgage payments are low but if you end up staying in your home for 30 years that could end up being a ton of interest that you are paying your mortgage lender. If you are searching for a home and have already received your prequalification letter my suggestion would be to try to see if you can swing a mortgage payment for 15 years (180 months) or 20 years (240 months). People do not understand how much interest they are saving by trying to do this first. On the flip side to that you need to determine if you can comfortably afford the higher payment that comes with a shorter term loan. If you can’t than of course it’s much easier to take the 30 year mortgage loan with the lower payment. There is no absolute correct choice because everyone’s personal situation is different and that’s why a properly licensed mortgage banker or lender should ultimately make sure that you are comfortable with the outcome. The whole point in buying your dream home is to also build equity not so that you can cash out on the equity and spend it at the mall but there is some security in knowing that you actually own a certain percent of your home. The mortgage industry has a variety of different programs as well as different terms, for example there are 10 year, 15 year, 20 year, 25 year and 30 year mortgages. When you are applying for a mortgage loan take the time to educate yourself and evaluate the different terms to see if you can find a mortgage loan that is perfect for your specific situation.

Buying a Home is a Lifetime Achievement and Can Make All of Your Dreams Come True

Buying a home of your own is a lifetime achievement and a home mortgage can help you achieve this milestone if you don’t have all of the cash to pay for it up front.  A home mortgage can also help you achieve this milestone much earlier than it would otherwise have been possible.  In fact, when you go to buy your first home there is lots of emotion involved.  Most people worry about whether they can afford a home loan or whether or not the mortgage loan will be approved or not.  Some people anticipate problems with home inspections and appraisals the home loan process can be a long and daunting however in the end all of this is worth it because buying a home can make all of your dreams come true.  What is a home mortgage?  A home mortgage is something that allows you to buy a house if you do not have enough money to pay for it right away this is made possible by borrowing money from someone and paying it back in monthly installments.  The person who lends you money is called the home mortgage lender or mortgage banker and sometimes they are also called mortgage brokers (the middle man).  The home mortgage lender or mortgage banker lends you money for a specific period of time.  For example you can take out a mortgage loan for 30 years this equates to 360 months or you can take out a mortgage loan for 15 years this equals a total of 180 months.  This period of time is thetime you are given to pay back the loan in monthly installments.  It’s just like a car loan except you are borrowing much more money and they are giving you much more time to pay it back and instead of buying a car you are buying a home for your family.  The most important information you will need to search for in the home loan process is the actual mortgage interest rate.  A mortgage interest rate is an actual charge that the mortgage lender or mortgage banker is going to charge you in order to lend you the money for a home.  Most home mortgage lenders offer various home mortgage options and programs.  For example, there are options such as Fannie Mae and Freddie Mac Conventional Mortgages.  There are also FHA and VA mortgage programs all made available to you by the mortgage banker and lender.  There are two types of mortgage rates today.  There are fixed rates which are fixed for the entire payback period and there are adjustable rates which as the name suggests can change throughout the term of the mortgage loan.  The most recommended rate of all for any home loan mortgage is the fixed rate.  Do not go with an adjustable rate mortgage unless you are very knowledgeable and educated in the market and follow rates on a daily basis as this rate can adjust at some point and time during the home loan payback period.   The mortgage interest rate is set based on the terms and conditions agreed upon between you and your mortgage lender.  Contact outside sources for mortgage advice before searching for a home and be sure you use a knowledgeable mortgage lender or mortgage banker and make sure that your loan officer is licensed in the state that you are doing business.