What You Need To Know About The Terms Of Your Mortgage

A mortgage loan is the biggest, and probably the longest, financial commitment you’ll ever make. Most homes cost three to four times their owners’ yearly salaries, or more in some areas of the U.S.

How much you pay depends greatly on how on the term length of your mortgage. Depending on your financial circumstances, you’ll likely have several options about how long you will pay for your home.

Most mortgage loans vary between 10 and 40 years, depending on the size of the loan. If you choose a fixed-rate mortgage, the terms are usually either 15 years for a short-term loan or 30 years for a long-term mortgage.

Although the monthly payment for a 15-year mortgage will be higher than the monthly payment for a 30-year mortgage, it can save tens of thousands of dollars in interest. The average payment for a 15-year loan is usually about 30 percent higher than for the same amount financed with a 30-year note. A 30-year mortgage will most likely have a higher interest rate than a 15-year loan.

Adjustable, or variable, rate mortgages, a loan with a low introductory rate that fluctuates, are based on a formula that involves industry trends and a mark-up for your mortgage lender. These loans can have a different rate every year, every quarter or even every month! Again, 15- and 30-year notes are the most common with variable, or adjustable, rate mortgages.

A popular option for many homebuyers is to go with a 30-year mortgage when they buy their home and refinance to a 15-year note sometime in the first 10 years of their purchase. Often they’ll have to use their equity to pay the closing costs and points of a refinance, but if interest rates have dropped it is often better for them.