Should I Get a Long- or Short-Term Mortgage?
Conventional mortgages have a 30-year term. However, homebuyers can obtain shorter-term mortgages. For example, another common option is a 15-year term. Some homebuyers pick short-term mortgage terms to help them pay them off sooner. Investors also opt for short-term terms.
In terms of mortgages for owner-occupiers who will purchase a single-family home, let’s look at an example. Those who receive a $500,000 mortgage with a 3% interest for 30 years will repay it in increments of $2,1000 monthly. Homebuyers who pick a 15-year mortgage for the same amount and interest rate will repay it in increments of $3,500 monthly.
The faster the homeowner chips away at the principal, the sooner they can repay the entire amount. Plus, the mortgage becomes less expensive. The 30-year term nets a total mortgage amount of $756,000. At 15 years, the total mortgage amount is $630,000. For some, saving $126,000 is significant. Homeowners will pay the difference since they don’t feel the extra amount over the long term.
Another strategy to consider is sending weekly or fortnightly repayments instead of monthly. Homebuyers who do not feel comfortable with a $3,500 monthly repayment can still chip away at the principal by sending extra repayments.
You can also go through this exercise by using our Mortgage House online mortgage repayment calculator for free and with no strings attached.
Short-term Mortgage Conclusion
Whether a long- or short-term mortgage is best depends on the homebuyer’s financial situation. To start narrowing down your options contact our Mortgage House lending specialists today.