Most people who owned their own homes used to choose to get a 30 year home loan. The total home loan payment is spread out over a longer period of time so that you can pay less each month. Plus, the fixed interest rates for 30 years make it seem like a good deal. Or is it?
The biggest benefit of a 30-year home loan is that you pay less each month. However, you pay more in interest than someone with a 10-year home loan. So, the longer the length of your home loan, the more you pay.
Here's an example to show how the length of a home loan makes a difference. Let's say the interest rate on a 30-year home loan is 7%. The loan for the house is $100,000. That means that your payment each month is about $665. It also means that the total amount of interest paid over 30 years is about $140,000. Now, let's look at a 15-year home loan with the same total loan amount and interest rate. The monthly payment is about $870, and the interest will add up to about $56,800 over 15 years.
So, if you choose the 15-year loan, you save a total of $83,200.
A longer home loan period does give you more options if your financial situation gets worse, like if you just lost your job and haven't been able to pay your bills for a few months. Having a lower monthly mortgage payment can help with some of the money problems.
Which is better, then? Which home loan plan is better? If you know about money and your finances are stable, I think it would be a good idea to take out a 30-year loan and invest the money you save instead of putting it toward the monthly payments. Your investment may pay off more or just as much in the long run as the money you use to pay off your home loan.
On the other hand, I would suggest a shorter home loan if you don't have a stable income and don't know much about money. Yes, you pay more each month, but the home loan plan will save you money in the long run. Also, you can build up equity in your home much more quickly, which can help you improve your FICO score.
Most people who want to buy a home think that a 30-year or even a 40-year home loan sounds good, but there are some questions that need to be answered first. I hope that this article will teach people who want to buy a home about some of the things they need to think about before choosing a home loan period.
