What is the best term when selecting a mortgage loan?
The term of your mortgage loan is what your lender uses to set your monthly payment. The longer the term you select, the lower this monthly payment will be. The downside of selecting a longer mortgage term is that you will build equity at a much slower rate while paying more interest over the life of the loan.
If you are financing your home with a traditional fixed interest rate mortgage you will have the option of choosing a mortgage term from ten to forty years. Nearly all adjustable interest rate mortgage loans have a term of thirty years.
You may be able to use the term of your mortgage loan as another bargaining chip to help secure a lower interest rate. With all other contributing factors being equal, the interest rate on a fifteen year mortgage will always be lower than a thirty year mortgage loan. Twenty-five and twenty year mortgage terms are less common but should offer lower interest rates than their thirty year counterparts. The interest rate on a forty year mortgage will always be the highest.
My name is Rob Regehr and I’m a personal finance writer with a chip on my shoulder for banks and brokers that take advantage of my friends and neighbors.
