The 30-year, fixed-rate mortgage has been the popular choice for homebuyers; however, today, lenders are offering a variety of loan types including 15, 20 and 40 year mortgages. Here is some basic information for new home buyers to make a wise choice in financing.
The Shorter Loan Term
Some home owners choose a shorter loan term to save on the amount of interest paid over the life of the loan. Of course a shorter loan term means a higher mortgage payment.
The Longer Loan Term
A longer term means a lower monthly payment; however, you will pay more interest over the life of the loan. This might be your choice if the larger payment on a shorter term prevents you from qualifying for the mortgage. Maybe you can better afford the smaller payment at first. You can always refinance at a later date.
Most mortgages do not have a pre-payment penalty, so you can make additional principal payments whenever you want to. This will also reduce the amount of interest you pay on the mortgage. The longer term has the smaller payment obligation for times when things are tight; yet the option of making larger payments as well.
Biweekly Mortgage Payments
Many lenders are offering the bi-weekly mortgage payment plan where they automatically withdraw the funds from your bank account in the amount of ½ a payment every two weeks. This means you will pay a total of one extra payment per year (26 half pmts = 13 payments); in addition, switching to biweekly reduces the interest and shortens the term dramatically.
The Sooner the Better
Making extra principal payments early in the life of the loan is most beneficial; this is when the most of your payment is applied to interest. The sooner you reduce the principal balance, the less you will pay for interest.
The type of financing you choose depends on many factors including how long you intend to stay in your home and how much you think your income will be in the future.
Mark Goedert of Goedert Real Estate provides information to home buyers and investors as well as affordable home listings and search tools to help with the process. Use the mortgage calculator to determine your monthly payment.
Mark Goedert of Goedert Real Estate has been in business for over 50 years, working with real estate professionals, agents, developers, investors, REO brokers and first-time home buyers in Battle Creek, Hillsdale, Lansing, Jackson, Grand Rapids, Adrian, Howell, Sterling Heights, Monroe, Farmington Hills, Ann Arbor, Detroit and neighboring cities and communities.
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