Friday, February 16, 2007

Mortgage Refinancing - Does Size Matter After All?

Hopefully your egotism have never had to undergo the words, “It’s all right honey. Size doesn’t matter.” After all, what’s of import is the quality right? In a perfect world, perhaps this is true, but in the kingdom of mortgage refinancing, what is best is usually based on length. Let me explain.

The bulk of mortgages are given at terms of either 15 or 30 years. This simply intends that if you have got got got got a mortgage of $150,000, you will have to pay it off in pre-calculated payments (fixed mortgage) over the adjacent 15 or 30 old age depending on which loan you have chosen.

Both long term (30 years) and short term (15 years) loans have their benefits and drawbacks. With a long term loan, you are going to profit from having significantly lower monthly payments. This do sense because the loan amount is distribute out over a longer clip period of time. However, because the length of the loan is extended over 30 years, you will be paying higher interest rates and subsequently, more than money in interest as opposing to a shorter termed loan.

On the other hand, a home mortgage loan with a length of 15 old age is going to have got a much higher monthly payment than a 30 twelvemonth mortgage. However, the trade-off is that you are going to pay much lower in interest owed to shorter terms carrying an overall lower interest rate.

Some financial analysts urge a 15 twelvemonth mortgage as the best home mortgage loan. They believe that although you are paying more than monthly, you profit from having the mortgage paid off quicker which salvages thousands in interest. Also, by paying more than on your mortgage in a shorter clip period of time, you are increasing the rate at which your equity is being built.

Yet again, other lenders and economic experts urge the 30 twelvemonth mortgage for the lower payments and tax benefits. If you are concerned about length, they urge purchasing a 30 twelvemonth mortgage (minus prepayment penalties) and pay extra on the principal. This allows you to profit from the lower monthly payments and tax benefits as well as having the loan paid off in less than 30 years.

The “best” mortgage length for you depends on what you are willing to compromise on. Both 15 and 30 twelvemonth loans have got their advantages and disadvantages. My advice is to utilize a mortgage payment calculator and see which term plant best for your financial situation. Regardless of the choice, take pridefulness in knowing that you are a homeowner.


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