What Are The Standard Terms For Home Mortgage Loans?

By Eric Goodwill

The key to understanding how mortgages work is no great secret. By understanding how standard mortgage terms work, you can understand what type of mortgage best suites you.

When you are looking for a mortgage or refinancing an existing mortgage, it is important to understand what the different terms of the loan are. Loan terms refer to the amount of time that the loan exists before it is paid off. The most standard terms for mortgages are 15 years and 30 years. Each of these have certain advantages and disadvantages. Understanding how they will affect you will help you choose the best mortgage product for you.

15-Year Term

The shorter mortgage term of 15 years, has many advantages. The mortgage is done at a lower interest rate than longer term loans. This lower interest rate reduces the total amount the loan costs, but due to the short term of the loan, the monthly payment is typically higher than for the longer term loan. The increased monthly payment is offset by the lower total cost of the loan, faster equity build up, and faster loan payoff.

30-Year Term

This is the most common term for mortgage loans. The loan has a slightly higher interest rate than the 15-year term. The higher interest and longer payment terms make this type of mortgage more expensive in total costs, but less costly on a monthly basis. Many people prefer this type of term because it allows them to save money every month that they can apply to the principle of the loan. This has the effect of reducing the total costs of the loan, because principle is being paid off faster. The saved money can also be set aside for other expenses.

The two most popular home mortgage terms provide benefits to the borrower. Make sure that you understand how each one will effect your monthly budget, as well as your overall costs. By making the proper decision now, you can save yourself a fortune over the life of your loan.

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