15-, 20-, 30-, or 40-Year?

When you're looking for a mortgage, you need to decide which loan term you want and choose the type of interest rate.

The loan term is the length of time you have to pay back the loan. The longer the term, the lower the monthly mortgage payment. The shorter the term, the higher the monthly mortgage payment.

Most home mortgage lenders offer two basic terms: 15 and 30 years, and many also offer 20-year fixed rate mortgages. Some lenders now offer a 40-year fixed rate mortgage as well.

  • 15-Year Term
    This term has higher monthly payments because the loan is shorter. The interest rate is usually lower and you can build equity faster.
  • 20-Year Term
    This fixed-rate mortgage builds equity more quickly than with a traditional 30-year mortgage as well as saves you interest over the life of your loan.
  • 30-Year Term
    Interest rates may be somewhat higher for this term and you pay more interest over time.
  • 40-Year Term
    Longer-term loans may result in lower monthly amortization payments, but you will pay more interest over time and rates may be higher than for a shorter-term loan.

What type of loan term should you choose?

If you can make higher payments and want to build equity quickly, a 15-year term may work for you.

If you want to qualify for a larger loan amount, longer terms may be a good choice - especially if you don't plan to move and the interest rates are reasonable when you sign the loan. This is generally the easiest loan term to qualify for. You can always make larger monthly payments and ask your lender to re-amortize your loan to pay your loan off faster.

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