pro finance blog
Menu
  • About Me
  • Hire Me
  • Contact Me
  • Submit a Guest Post
    • Privacy Policy
    • Disclaimer
Menu
Choosing a Mortgage

Choosing a Mortgage Term That Fits

Posted on December 19, 2017June 13, 2020 by Tina Roth

Like many decisions in life, there’s no one-size-fits-all approach to choosing a mortgage term. Although a 30-year fixed-rate mortgage is the industry standard, it’s possible to get a loan of virtually any length these days, from a 5-year to a 40-year fixed-rate, or even one of customizable length. Whichever you elect, understand that each option affects your financial picture differently in regard to cash flow, investment potential, tax benefits and equity generation. In the end, what matters ultimately is that you’re neither stretching your budget too thin nor undermining your fiscal potential.

Choosing a Mortgage

Fixed Rate Mortgages

In 2016, 90 percent of US homebuyers chose 30-year fixed-rate mortgages, according to Freddie Mac Vice President and Chief Economist Sean Becketti. A mortgage of this length allows the benefit of a lower monthly payment over a long time period. If you’re anticipating a life change in the future, just starting a career, or need cash available for things like paying down debt and building a nest egg, this mortgage is an attractive option. The overall cost of your home, however, will be higher than if you choose a shorter-term mortgage, plus, you’ll build equity more slowly.

If you can afford the monthly payment, a 15-year fixed-rate mortgage is a great option because you’ll pay less interest over the life of the loan and your home equity will build quickly. Essentially, you’re paying off your loan’s principal in half the time. This term also achieves a lower interest rate, often up to 1 percent less than a 30-year mortgage. In the long run, you’ll save yourself many thousands of dollars on your  home purchase.

Adjustable-Rate Mortgages

With an adjustable-rate mortgage, your loan’s interest rate is fixed for a set time period, and once that time is up, the loan resets to the prevailing rate. The most common ARM is a 5/1, where the loan is at a fixed rate for 5 years, with an annual rate adjustment thereafter. Other common ARMs are 7/1 and 10/1. These types of mortgages are sometimes good for people who intend to sell or refinance before the fixed-rate period is over. Historically, when interest rates have been higher, borrowers with good credit have obtained ARMs with initial interest rates significantly lower than fixed-rate mortgages, allowing more cash for the short run.

How Things Stack Up

With so many loan scenarios, it’s important to consider what a monthly payment might be across various terms and rates. This is what a monthly payment on $300,000 borrowed looks like, using November 2017 rates:

  • 15-year fixed-rate at 3.5 percent=$2,145
  • 30-year fixed-rate at 4 percent=$1,432
  • 5/1 ARM at 3.875 percent=$1,410 for the first 60 months

Here are examples of total principal and interest costs on $300,000 borrowed, using the two most popular mortgage loan terms and November 2017 rates:

  • 15-year fixed-rate at 3.5 percent=$386,037 at maturity
  • 30-year fixed-rate at 4 percent=$515,609 at maturity

Now that you know a little more about mortgage terms, try using one of these simple calculators to help determine the potential cost of your new home.

Category: Mortgage

Leave a Reply Cancel reply

You must be logged in to post a comment.

About Me

finance blogger

The idea of starting a blog has been hitting me for long; I took it seriously after falling into a spiral of debt and recovering from it.

I have been anxious all through the financial difficulties. I see that same anxiety in the eyes of people, whose ill fate has put them at odd with financial repose.

It makes me compassionate. Out of this compassion and goodwill, I started this blog. I wanted to help all those, who are facing financial distress..




  • Stock Market
    Understanding the Gov Tech MarketFebruary 16, 2023
  • Phuket Real Estate
    Why You Should Invest in Phuket Real EstateJanuary 24, 2023
  • Corporate Governance
    Corporate Governance: What Are the 3 Core Principles of Good Corporate Governance?December 17, 2022
  • Successful Retirement
    How To Plan For Successful Retirement At 50: 5 Steps To Get Started OnNovember 4, 2022
  • Online Money Transfer
    Do You Still Transfer Money Internationally With Your Bank? There Are Better Online Solutions For ThatOctober 14, 2022
  • finance
    Important Roles of the Minister of FinanceSeptember 16, 2022
  • Avoid for New Businesses
    5 Forecasting Faux Pas to Avoid for New BusinessesSeptember 16, 2022
  • Affecting Pensions
    How Inflation Is Affecting PensionsSeptember 2, 2022

    ProFinance Blog is dedicated to help people who are struggling with their personal finances. We have learned the lessons first hand and know how real the struggle is. Being compassionate about the personal finances and blogging about is our way to help people know more about different situations and how effectively they can handle it. So take control of your finances now and take actions towards gaining financial freedom and security. Join us in the mission to self-educate, learn and help others by sharing valuable information on finances. Here you will find information, tools and techniques on various aspects of finances and learn how you can use the information and implement it to make your financial life better than ever.Join us in our mission to financial freedom.

    • Stock Market
      Understanding the Gov Tech Market
    • Phuket Real Estate
      Why You Should Invest in Phuket Real Estate
    • Corporate Governance
      Corporate Governance: What Are the 3 Core Principles of Good Corporate Governance?
    © 2023 ProFinance Blog | Powered by Minimalist Blog WordPress Theme