It used to be the first choice of most borrowers, because since the total payments are spread over a longer period of time with the interest rate set for the entire time of the mortgage, the monthly payments are naturally lower. A 30 year home loan is the industry standard but is it the right choice for you?
As we mentioned, the plus side of a 30 year home loan is lower monthly payments. This attraction is somewhat dimmed by the fact that you pay thousands extra in interest. But, your interest is 100% tax deductible which does lower your after tax cost. It offers you some flexibility so that if your financial situation changes and you have more money you can pay it off in less than 30 years, this while keeping the low monthly payments. Your payments are smaller so in reality you can purchase a larger roomier home.
Here is an example of the difference in interest between 30 year home loan term and one of the other terms:
On a 30 year, 200,000 dollar loan using 5.5% interest rate your monthly payment of principle and interest would be $1135.58. Over the next 30 years you will have paid approximately $208,809 in interest alone. Now with a 15 year term loan at the same rate (although the rate on a 15 year term mortgage will generally be lower) on the same amount you will pay $1,634.17 per month over the next 15 years, and your interest payment for the full term would be approximately $94,150. This would save you $114,659 over the full term.
However, if you have the will power to invest savings from the monthly payments, it still could be a good choice to go with the 30 year mortgage. Especially if you can find an investment that the long term payoff matches or exceeds what you would save in a 15 year mortgage. Another factor to consider is how fast you want to accrue equity in your home or to own it out right. 30 year home loans take much longer to build equity.
30 year home loan payments are certainly attractive and the vast majority of home buyers get 30-year loans because that is the longest home loan term available. Experts agree if they could get a 35 or 40 year loan, they probably would. There are many other options to consider, but probably the biggest question you have to ask yourself when considering a home loan is what are your financial goals? What loan plan will help you the most to reach that goal? It is clearly to your advantage to look into other loan options for the best home loan available to help you meet your financial goals. It may surprise you that based of your personal situation there may be other plans more suitable for you.
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For more about 203k, please visit the HUD website. To find out if you qualify for 203k financing, visit a HUD-approved lender at http://www.unitednorthern.com/New_20_Jersey.html. Please send inquiries to Tony Phillips. For additional 203k mortgage sources and relevant information, please visit the recently launched B.K.HECM Home Loan search.
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If the government can’t run business, how come businesses always run to the government for a bailout when it runs into trouble? FHA-insured mortgages, government run for 75 years. Lest we forget?