An FRM (fixed rate mortgage) can have a term as short as ten or as long as forty years. When the loan is spread out over a longer time, the payments will be less, but of course the loan will take a longer time to pay off. The best thing is to locate the right balance between the mortgage you can afford for the shortest FRM.
The longer term FRMs are a lot more expensive over the course of the life of the mortgage. But shorter term ones mean higher monthly payments so an FRM with a term of 10 years can have twice the monthly payment of an FRM of 40 years.
In addition, the interest rate risk the lender takes on a forty year home loan is much greater than on a ten or fifteen year home loan, since so much more in interest rate fluctuations can occur during this longer time.
Fifteen and thirty year fixed rate home loans are the most popular, and for reasons cited above, the rates on fifteen year mortgages are usually less than for the longer mortgages. Needless to say, forty year home loans will have the highest rates of all.
Many homeowners today opt for the 15 year FRM for lowest rates and lowest payments.
You can have the projected monthly payments calculated by a mortgage consultant. If you can’t afford this monthly payment, you can then move into a longer maturity until you meet the amount you have budgeted for your mortgage.
Don’t forget that you can always pay your home loan down sooner in a number of ways. Most young buyers have no choice but to take the lower monthly payments, but as their finances improve, they can pay more over time. Making additional payments on the mortgage will effectively lower the total term of the mortgage in this way.
A quick call to a mortgage broker, or a perusal of the internet will permit a potential borrower to ascertain the payments required on each term of a mortgage at different rates. A lot of borrowers find it easier to just have a mortgage broker do all of this work for them.
The process, therefore, is to find the shortest term loan for which you can afford the mortgage payments, while getting the best rate, recognizing that the longer the term of the mortgage, the lower the payments, but the shorter the term of the loan, the lower the interest rate.
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