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What Length Mortgage Should I Choose?

What Length Mortgage Should I Choose?

  • Mortgage Length Overview
  • One of the key decisions you make when you select a mortgage is to the length of your loan.  Length of your mortgage is also called your loan term.  Lenders typically offer mortgages with 10, 15, 20, 25 and 30 terms, with the 30 year term being the most popular.  What length mortgage you choose is an important decision because it impacts what size mortgage you can afford, your mortgage rate, monthly payment and total interest expense over the life of your loan.

    For example, most people select a 30 year mortgage because it offers the lowest monthly payment which enables you to qualify for a higher loan amount. But the mortgage rate for a loan with a shorter term, such as a 15 year mortgage, is lower which enables you to save a significant amount of money over the life of your loan but your monthly payment is higher. So there are trade-offs between shorter and longer term mortgages that borrowers should consider when answering what length mortgage should I get?

  • CalculatorUse our Mortgage Calculator to understand how mortgage length affects your monthly payment and total interest expense
  • How Mortgage Length Impacts Your Interest Rate, Monthly Payment and What Size Loan You Can Afford 
  • The table below outlines some basic guidelines for mortgage length.  To summarize the table, the longer the length of you mortgage, the higher your mortgage rate, the lower your monthly payment but the more interest expense you pay over the life of the loan.  Additionally, the longer the term the larger the mortgage you can afford because the monthly payment is lower.  The reason your total interest expense is higher with a longer mortgage is because you are borrowing the money for a longer period time which increases your interest cost. 

    The table also shows that the shorter your mortgage length, the lower your mortgage rate, the higher your monthly payment but the lower your total interest expense. The reason your monthly payment is higher with a shorter mortgage even though your mortgage rate is lower is because you are repaying the loan over a shorter length of time which results in an increased payment as compared to a mortgage with a longer length.

  • Guideline Explanation
    Shorter term = lower interest rate A shorter term means less risk for the lender providing you the loan and less risk means a lower interest rate for you
    Shorter term = higher mortgage payment Even though mortgages with a short term have lower interest rates, they have higher monthly payments because you are repaying the principal amount of the mortgage over a shorter period of time
    Longer term = larger mortgage you can afford For example, if you can afford to spend a maximum of $3,000 on your monthly mortgage payment, you will be able to afford a larger mortgage amount with a longer term than you could with a shorter term
    Longer term = more interest expense Even though your mortgage payment is higher with a mortgage with a shorter term, you pay much less in total interest expense over the life of the mortgage because you pay off your mortgage faster
  • The example below shows what size mortgage you could afford with the same monthly payment for different lengths of mortgages.  The example demonstrates how you can afford a larger loan amount with a longer mortgage.  Note how the monthly mortgage payment does not change while the loan size increases significantly as the mortgage length increases.  In this example you can afford a $610,000 loan with a 30 year mortgage as compared to a $427,000 loan with a 15 year mortgage -- a significant difference in loan amount.  The example also illustrates how your mortgage rate increases as the length of your loan increases but your monthly payment stays the same.

  • Mortgage Term
    10 Years 15 Years 20 Years 30 Years
    Interest Rate 3.00% 3.25% 4.00% 4.25%
    Mortgage Size $310,000 $427,000 $495,000 $610,000
    Monthly Mortgage Payment $3,000 $3,000 $3,000 $3,000
  • The downside to a longer mortgage is that the borrower pays thousands of dollars more in total interest expense over the life of the loan.  In the example below, we hold the mortgage size constant at $300,000 to demonstrate how the monthly payment decreases as the mortgage length increases but total interest expense increases significantly the longer the loan.  This example illustrates how getting a mortgage with a shorter term can save you hundreds of thousands of dollars in interest expense over the course of your loan.  In this case, the borrower saves $151,000 in total interest expense by selecting a 15 year term as opposed to a 30 year term -- for the same mortgage amount.

  • Mortgage Term
    10 Years 15 Years 20 Years 30 Years
    Interest Rate 3.00% 3.25% 4.00% 4.25%
    Mortgage Size $300,000 $300,000 $300,000 $300,000
    Monthly Mortgage Payment $2,900 $2,110 $1,820 $1,475
    Total Interest Expense $48,000 $80,000 $136,000 $231,000
  • The table below shows mortgage rates and fees for leading lenders in your area.  The table shows 30 year fixed rate mortgages, which means your interest rate is higher but your monthly loan payment is lower.  We recommend that you contact multiple lenders to understand how your mortgage length impacts your loan terms.  Shopping for your mortgage is the best way to find the loan that is right for you.

  • Rate Details*
    Loan Program:  
    Monthly Payment:  
    APR:  
    Rate:  
    Points  More Info:
    Points: Fees you are willing to pay in order to get a lower interest rate. The number of points refers to the percentage of the loan amount that you would pay. For example, "2 points" means a charge of 2% of the loan amount.
     
    Total Lender Fees:  
    Loan type:  
    Property Value:  
    Loan to Value:  
    Credit Rating:  
    Date Submitted:  
    Monthly Housing Payments
    P & I More Info
    Principal & Interest: A periodic payment, usually paid monthly, that includes the interest charges for the period plus an amount applied to the reduction of the principal balance.
    Mortgage Insurance More Info
    Mortgage Insurance: The monthly cost for a policy that protects the lender in case you’re unable to repay the full amount of the loan. It is typically required for loans that have a loan-to-value ratio between 80% to 100%.
    (Estimated)
    Property Tax More Info
    Property Tax: (Also called "Real Estate Tax.") Property taxes are government assessments on real estate property. With mortgage financing, the local, county or state tax assessment on real estate property is considered part of the monthly housing obligation and typically collected and set aside by the lender ...
    (Estimated)
    Homeowner Insurance More Info
    Homeowner Insurance: or also commonly called hazard insurance, is the type of property insurance that covers private homes. It is an insurance policy that combines various personal insurance protections, which can include losses occurring to one’s home, its contents, loss of its use, or loss of other personal possessions of the homeowner, as well as liability insurance for accidents that may happen at the home or at the hands of the homeowner within the policy territory.lender ...
    (Estimated)
    Homeowner Association Fee More Info
    Homeowner Association fee: (HOA) fees are funds that are collected from homeowners in a condominium complex to obtain the income needed to pay (typically) for master insurance, exterior and interior (as appropriate) maintenance, landscaping, water, sewer, and garbage costs.
    (If Any)
    Total Monthly Housing Payments
    Lender Fees
    Points More Info
    Points Fees you are willing to pay in order to get a lower interest rate. The number of points refers to the percentage of the loan amount that you would pay. For example, "2 points" means a charge of 2% of the loan amount.
    Origination Fee More Info
    Origination Charge: A loan origination charge is a fee charged by the lender for evaluating, processing, and closing the loan.
    Credit Report Fee More Info
    Credit Report Fee: Fee charged to obtain an applicant’s credit history prepared by one or all of the three major credit bureaus. Used by lender to determine the borrower’s creditworthiness.
    Tax Service Fee More Info
    Tax Service Fee: A fee charged by the lender to cover the cost of retaining a tax service agency. These agencies monitor the property tax payments on the property and report the results to the lender.
    Processing Fee More Info
    Processing Fee: A processing fee is a charge by the lender for clerical items associated with the loan. Examples of processing include loan set up, organization of loan conditions for underwriting, and preparing required disclosures for the borrower.
    Underwriting Fee More Info
    Underwriting Fee: A fee charged by the lender to verify information on the loan application, authenticate the property’s value, and perform a risk analysis on the overall loan package.
    Wire Transfer Fee More Info
    Wire Transfer Fee: In most cases lenders wire funds to escrow companies to fund a loan. Commercial banks that perform this function will charge the lender so the fee is generally passed on to the borrower.
    (If Any)
    FHA Upfront Premium More Info
    FHA Upfront Premium: A fee paid in cash at the close of escrow or more commonly it is financed into the loan. These premiums are pooled together by the FHA and are used to insure the risk of borrower default on FHA loans. FHA upfront premiums are prorated over a five year period, meaning should the homeowner refinance or sell during the first five years of the loan, they are entitled to a partial refund of the FHA upfront premium paid at loan inception.
    (If any)
    VA funding Fee (If any)
    Flood Fee
    Other Fees More Info

    Other fees could be either additional Administrative Fees that a lender charges or it could be a Flat Fee to cover all lender charges such as: (Origination Fees, Points, Underwriting and Processing Fees, Credit Reports and Tax Service Fees)

    The flat fee does not include prepaid items and third party costs such as appraisal fees, recording fees, prepaid interest, property & transfer taxes, homeowners insurance, borrower’s attorney’s fees, private mortgage insurance premiums (if applicable), survey costs, title insurance and related services.

    Total Lender Fees
    *Actual rates and other information may vary. Sponsored results shown only include participating lenders. The information you enter on this page will only be shared with lenders you choose to contact, either by calling the phone number or requesting a quote.
    Current Mortgage Rates as of December 11, 2018
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    Data provided by Informa Research Services. Payments do not include amounts for taxes and insurance premiums. The actual payment obligation will be greater if taxes and insurance are included. Click here for more information on rates and product details.
  • Now that you have an understanding of how mortgage length affects your mortgage rate, mortgage payment and total interest expense, we can return to the question of “What length mortgage should I get?”  The answer to that depends on your financial goals.  If you are seeking to maximize your mortgage amount and minimize your mortgage payment, then you should select a 30 year mortgage.  If you can afford a higher monthly mortgage payment and want to save tens of thousands or even hundreds of thousands of dollars in interest expense over the life of your loan, then you should choose a shorter mortgage term, such as a 15 year loan.  Although most people select a 30 year mortgage, consider choosing the shortest term that will also allow you to feel comfortable with your monthly mortgage payment.

    Review our What Length Mortgage Should I Choose video to determine the loan term that is right for you.

  • FREEandCLEAR Mortgage Instructional Video

    What Length of Mortgage Should I Choose? Instructional Video

  • One creative way to think about mortgage length is to get a 30 year mortgage but make the same monthly payment that you would with a 15 year loan, so a higher payment than what is required.  That way you maintain the flexibility of having a lower required monthly payment that goes along with a longer mortgage (in case you cannot afford to make the higher payment), but you pay off your mortgage in approximately 15 years and save thousands of dollars in interest expense.  Paying more than your required mortgage payment is called mortgage acceleration.  We provide a comprehensive explanation of how mortgage acceleration works, including the potential benefits for borrowers.

  • Great Mortgage IdeaWe recommend that you pay off your mortgage as soon as possible so that you can start paying yourself instead of paying interest to the bank
  • Use our free personalized mortgage quote feature to review loan proposals for top-rated lenders.  Our quote form makes it easy to shop for a mortgage, is free, no obligation and requires minimal information.

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  • Sources

    Loan Term: https://www.consumerfinance.gov/owning-a-home/loan-options/#anchor_loan-term_361c08846349fe

About the author

Harry Jensen, Mortgage Expert

Harry is the co-founder of FREEandCLEAR. He is a mortgage expert with over 45 years of industry experience. Over his career, Harry has closed thousands of loans for satisfied borrowers and now offers his advice and insights on FREEandCLEAR. More about Harry

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