Independent Bank Blog

Know Your Mortgage Options

Written by Independent Bank | July 20, 2018 at 4:51 PM

15 years, 20 years, 30 years and 40 years


Homebuyers often get so wrapped up in the process of finding the perfect place to call home, that they fail to do proper research on mortgage options before they begin the house hunt. If you fall into this group of buyers, don’t feel bad. Sometimes excitement just gets the best of you, but fear not, it is never too late to learn about your mortgage options and educate yourself on what everything means. Knowing a bit about the mortgage industry and what mortgage options are available to you might help you score a better deal on your dream home.

15-year Mortgage

15-year mortgages are just what they sound like—a 15-year home loan that has a term of 15 years. By taking out a 15-year mortgage, borrowers can enjoy a lower interest rate and will pay less in interest over the life of the loan.15-year mortgages will typically have a much higher monthly payment than their 20-year and 30-year counterparts.

20-year Mortgage

A 20-year mortgage is not the most popular option for homeowners, but can be a good compromise for people who want to avoid the drawn-out payments of a 30-year mortgage, but can’t afford the high payments of a 15-year mortgage. Each payment is higher than those associated with a longer term, but borrowers will spend less money on interest over time and will see a quicker drop in the amount of interest they pay. This means that more money will go towards the principle of the loan more quickly.

30-year Mortgage

30-year mortgages remain the most common type of mortgage loan. There is a good reason for this, too. A 30-year mortgage allows for borrowers to more easily afford payments while building equity in a home. A 30-year mortgage for $250,000 is likely to achieve a monthly payment of about $1,300 a month. A loan for the same amount, but stretched over 15 years, would achieve a monthly payment of about $1,900 per month. The $600 savings is often enough for most homebuyers to opt for a 30-year mortgage over a 15-year mortgage.

40-year Mortgage

40-year mortgages are relatively uncommon, and many experts suggest that the perceived benefits don’t actually exist, they are simply smoke and mirrors. According to Jeff Lezerson of MortgageGrader.com, the perceived benefit of a 40-year mortgage is a lower monthly payment, but because they are generally rated at a higher interest rate, borrowers may end up paying significantly more over the life of the loan.

Other Important Factors

The length of your loan isn’t the only thing that matters when figuring out whether or not you can afford your potential mortgage. Experts suggest looking at all of the money that will go into homeownership and read over the terms of the loan carefully before making a decision. For example, you’ll want to know if your property taxes will be rolled into your mortgage payment, or if it will be a separate payment. You’ll also want to ensure your mortgage is a fixed-rate mortgage rather than an adjustable-rate mortgage if you intend to stay in your home long-term.

An adjustable-rate mortgage may afford you a lower payment and interest rate in the short term, but can balloon to a much higher payment at a later date. A fixed-rate loan ensures your interest rate, and, thus, your payments will never change.

Buying a home is a big step and should not be taken lightly. Before making a final decision, plan to speak with a financial advisor and take a hard look at your budget to ensure you can afford your dream home and the mortgage associated with it.