Which Mortgage Term Is Right for You?

When buying a home, you’re likely to encounter a variety of Florida loans with different term lengths and interest rates. Each of these products is meant to provide you with options when deciding how to pay for your home. 

The most traditional home loan is the 30-year fixed mortgage, but there may be longer or shorter options available. In this article, we’ll discuss how to choose a mortgage term that is appropriate for you.

What Mortgage Term Lengths Are Available?

The two most common mortgage term lengths are 30 years and 15 years. However, some brokers will offer 10-year, 20-year, or even 40-year options. When choosing the length of your mortgage, a key point to understand is that the longer the term of your mortgage, the more you will pay in interest. 

Most people choose to go with the 30-year mortgage as it is the industry standard. If you’re purchasing a fairly expensive home and know that you will need time to pay it off, the 30-year mortgage may be best for you. 

On the other hand, if you have the cash available each month, it may make sense to choose a 15-year mortgage to pay less in interest and obtain complete ownership in a shorter time frame.

While most brokers offer both 15-year and 30-year options, you may come across some banks that are willing to offer the less-common 10-year, 20-year, or 40-year mortgages. 

10-year mortgages are best for people who have the cash flow to make larger mortgage payments over a shorter period, while 40-year mortgages work for people who purchase expensive homes that they will need time to pay off.

Keep in mind that when you select a mortgage with a shorter term, your monthly payment will increase significantly when compared to a 30-year mortgage. It won’t completely double, but it may be up to 1.5x more than it would be under a 30-year mortgage. 

When examining the loan options that you have, it’s important to pay close attention to monthly payments under each type of loan. Mortgage brokers will shoulder the burden of this work by offering you monthly payment options that suit your finances.

How Does Interest Affect Florida Home Loans?

While there are a variety of different term lengths to choose from, they may come with different interest rate options. The most common interest rate type is fixed — which means that the interest rate doesn’t change throughout the life of the loan — but there are also adjustable-rate mortgages. 

A fixed interest rate ensures that you will make the same mortgage payment throughout the entire length of your loan. Your interest rate won’t change. 

This rate type is the most optimal choice to go with if you can lock in a very low interest rate for your mortgage. It’s not a great choice if interest rates are high unless you plan on refinancing down the road.

An adjustable-rate mortgage has a fixed interest rate for a certain period — usually one year, five years, or seven years — before interest rates are adjusted and your mortgage payment changes. 

The interest rate on these types of loans is typically tied to a specific index, and your broker will add a certain amount to the index to determine your new payment after the fixed period has passed.

Adjustable-rate mortgages can result in unpredictable mortgage payments, especially if you plan to stay in your home for longer than a few years. However, you can choose to refinance your home after the fixed period has passed if you find your mortgage payments have increased significantly. 

Choosing the Right Term

Choosing the appropriate mortgage that suits you is a time-consuming but worthwhile process. Purchasing a home is likely to be one of the most important choices you will make in your life.

Working with mortgage brokers in Florida can help you to decide on the type of loan that is best for you. They can devote the time and effort it takes to analyze your finances, so you won’t have to worry about it. No matter which loan term is best for you, mortgage brokers will offer you the amortization schedule needed to pay off the loan. In some cases, mortgage brokers even have access to custom loan terms if you would prefer a certain time period that isn’t a conventional 10, 20, 30, or 40-year term.

Disclaimer: The opinions expressed above are meant for illustrative purposes only. For specific questions about mortgages or your lending needs, please contact Arco Financial. www.arcofinancial.com. Some restrictions apply. NMLS # 2149692