You’ve decided it’s time to buy your own home. You know that home prices across Colorado continue to increase and that a home purchase would be a solid investment. On top of that, you feel confident in your ability to stay current with a mortgage payment.
So you start looking into what it takes to obtain a home loan. You realize the amount of documentation required for pre-approval, and you even begin putting the paperwork together. Then you stop and ask yourself, “How long will it take to pay off my mortgage?”
It’s a common question everyone asks during the application process. Whether you’re purchasing your first home or you’ve bought real estate in the past, you might not feel comfortable selecting your mortgage term. That’s why we suggest exploring your options and making your decision based on your specific situation.
Keep reading as we discuss mortgage term length in greater detail.
What is a term mortgage?
Generally speaking, a term mortgage is amortized over the loan’s duration. Say you choose the popular 30-year mortgage for your home purchase. A fixed-rate mortgage entails paying the same amount each month for 30 years until there is no longer a balance.
The critical piece to remember, though, is that your mortgage servicer applies your funds differently from month to month. For example, most of the payments in the first few years will go toward interest. You’ll then notice a shift later on in your loan payoff as more funds are used to pay down the principal.
Maybe you’re wondering if there are other options besides a fixed-rate mortgage. With an adjustable-rate mortgage, borrowers can typically score a lower rate during the introductory period. This timeframe could be three, five, or seven years.
Once the introductory period ends, the interest rate can either increase or decrease depending on market conditions at the time. Borrowers who elect an ARM take on quite a bit of risk since they don’t know what could happen with their rate or their finances in the future. That said, an adjustable-rate mortgage is a viable option if you’re interested in the lowest rate and payment possible and you intend to move before your rate can fluctuate.
Check out this article from American Financing that compares fixed-rate and adjustable-rate mortgages.
How to choose a mortgage term length
Now that you understand the impact of various loan types on your payoff, let’s dive into mortgage term length. Again, research what’s available and how to qualify. Then work with an experienced lender who has your best interest in mind.
How would you like to own your home outright in half the time? This dream can be a reality when you opt for a 15-year mortgage instead of a 30-year loan. Aside from paying off your loan sooner, you’ll also enjoy a lower rate and save thousands of dollars in interest.
It’s easy to see why many financial experts prefer this particular mortgage term over others. But you must remember that a 15-year mortgage may not be feasible for your budget. The shorter period translates to higher monthly payments, meaning any household job loss or unexpected expense could be catastrophic.
Our advice is to estimate your monthly payment ahead of time. As long as you have sufficient income and minimum debt responsibilities, a 15-year mortgage remains in play. The alternative is to stick with a 30-year loan and make extra principal payments whenever possible.
Affordability serves as the primary advantage of a 30-year mortgage. Granted, you’ll be spending up to three decades paying off your loan and watching as most of your money goes toward interest for a while. Yet countless Americans would agree that it’s all worth it to become a homeowner.
Think of a 30-year mortgage as another wealth-building tool. You’re building equity with every loan payment you make. Plus, with home prices still on the rise in Denver, there’s a good chance that your home’s value will continue to climb.
Work with the right lender
At American Home Agents, we are proud to partner with American Financing. They’re a national mortgage company that goes above and beyond for every customer. They have many loan programs to pick from, including FHA, VA, and conventional loans.
Please do yourself a favor and get pre-approved before talking to one of our real estate agents. That way, you’ll know exactly how much home you can afford.
Ready to buy a home in Denver? Call American Home Agents at (303) 695-5900.