Comparing a 40 Year Mortgage to a 30 Year Mortgage
The first question most buyers ask about when they are looking to buy a home is, “What is a 40 year mortgage?” Most first-time homebuyers face this dilemma, as the actual term of the mortgage is unknown. Unfortunately, many sellers do not have any idea what the terms of their mortgages are either. So, if you are buying a home, it is important to understand how much time you have left on the loan. Knowing this can save you thousands of dollars.
The term of your mortgage refers to the length of time you have to pay off the mortgage. It can range from two years to 30 years. Depending on the value of your home, you could pay as little as a few hundred dollars a month to two thousand. That is the amount you will be obligated to pay for the mortgage. Some people even opt for lower monthly payments in order to have more time to make their mortgage payments. This is a smart move because you can save up more money in the long run.
How long before you will have to refinance? You can’t decide this until after you have figured out how much time and money you will need to pay down your mortgage balance. However, you do need to know this number before you shop for a new mortgage. Keep in mind that interest rates do tend to go up over time. Therefore, if you plan on staying in your home for a few more years, it might be in your best interest to refinance sooner rather than later.
How long do you think it will take to pay off your mortgage balance? Your payment will vary depending on how much equity you have accumulated along with the current interest rate. However, if you get an adjustable rate, it is possible you could save a great deal of money over the years. Just be sure the rate stays where you want it.
Will my payments be higher each month? Depending on your situation, this answer will be different. If you owe a lot of money and your mortgage is in its highest interest rate stage, you may end up paying more every month. The opposite holds true if you are paying a low amount due to a low interest rate and your mortgage is at a lower payment stage. Think about what you can afford and then adjust your payment amount accordingly. Do not overextend yourself financially.
How long are you going to be living in your house? If you plan on living in your home for decades, you will likely have additional expenses beyond the actual mortgage repayments. Do some research and determine how much you plan on spending each month. Then, add up all the numbers to see how much your monthly mortgage cost will be.
Is there any way to “cancel” or “defer” your mortgage? Not having mortgage coverage on an existing property is considered foreclosure. When this happens, you have a few options. You can pay off the mortgage early (many homeowners choose to do this), sell the property, or refinance with a different mortgage lender. There are pros and cons to each option and it is important that you discuss these with a qualified mortgage professional.
Is a shorter term or a longer term better option? Depending on your financial situation, you will want to decide if a longer loan term is best. The term length will affect the interest rate and monthly payments. A shorter mortgage loan term means less time to pay and lower monthly payment. On the other hand, a longer mortgage loan term will be less money paid over the life of the loan.