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What Are The Different Terms For A Mortgage?

By Stacy Williams

Great guide to understanding how mortgage terms can effect your bottom line and how to make the best financial decision possible.

Looking at a mortgage can be one of the most intimidating documents a person will ever have to face. There seem to be an endless supply of mortgage products out there and many people get confused as to how they are presented. This is partly because people do not understand the terminology that mortgage companies use. It is important to understand what a mortgage “Term” is and how it effects the mortgage.

What is a Mortgage Term?

The Term, on a mortgage, is the amount of time that the borrower has before the total loan amount is due. This is the lifespan of the loan. You may hear of a 30-year fixed rate loan. The term is 30 years. There are several different types of terms available. Starting with the most basic, for the fixed rate loans, then moving to the more complicated, for adjustable rate mortgages.

Fixed Rate Loan Terms

For years, there were really only two terms available for fixed rate mortgages, 15-year and 30-year. There are some lenders that offer 20-year and up to 40-year terms now. The shorter the term, the lower the interest rate typically is. This drives down the total cost of the loan, but typically means that the monthly payments are higher. For people that have the monthly income, that want to get their mortgage paid off quickly or build equity faster. Longer term may have a slightly higher interest rate and they may have a higher total cost, but the monthly payments are lower. These are perfect for people that want to save more every month, and do not mind the slower equity buildup.

Adjustable Rate Mortgage Terms

While the terms offered for A.R.Ms are the same as fixed rate loans, there is a slight difference. There is an introductory term of very low interest. These terms are typically between two to five years in length. After this initial term, the interest rates can fluctuate depending on what the current lending rate is. The main idea of this type of mortgage is to build equity quickly during the introductory term, then refinance or sell the property, before the rates can go up. These are riskier loans for the borrower and not recommended for everyone.

Understanding how terms can affect you, is essential when looking at mortgage products. Planning appropriately can save you money, allow you to pay off your house faster or prepare to sell the house with more equity built up.

Related posts:

1. What Are The Standard Terms For Home Mortgage Loans?
2. What Are The Advantages Of 15 Year/30 Year Mortgage Loan Terms?
3. What Is A Term Mortgage?
4. What Are The Terms Of An Average Mortgage?
5. Are My Loan Terms Based On My Mortgage Interest Rate?