15 and 30 years aren't the only mortgage choices

[disneysteve]

Whenever we talk about fixed-rate mortgages, it seems that all that ever gets discussed is 15 year or 30 year terms. Many people may not even realize that those are not the only two options. Many lenders offer 20 or 25 year loans also.

Why is this important? I think there are a couple of good reasons.

1. Let's say you bought your house a few years ago with a 30-yr loan. Now rates have dropped and you want to refinance. If you take out a brand new 30-yr loan, you are actually extending your repayment period and increasing the total interets you will pay over time.

2. You are buying or refinancing and can't afford the payments on a 15-yr, but can afford more than on a 30-yr. Look around for something in between. You'll save on interest and be mortgage-free sooner.

Personally, the last time we refinanced, we were 3 years into a 30-yr loan. Thanks to the lower rate, we switched to a 25-yr loan. We got a lower payment and cut our term by 2 years in the process.

So don't forget to ask about other terms besides 15 and 30 years if you are in the market for a mortgage.

[poundwise]

Good advice!

That's something to always be aware of.

[th_tan]

Definately good advict, I've never thought about that before. Can definately save thousands doing that.

[Ima saver]

Actually, when I got my first mortgage, it was in the mid 60's. the only option (I think) that we had back then. was a 20 year mortgage. When i got a mortgage on land we purchased 2 years ago, I told them I wanted a 12 year mortgage. That way I was comfortable with the monthly payments. (I have since paid it all off)

[Joan.of.the.Arch]

I always assumed that, with mutually agreeable terms, any length of mortgage could be negotiated. I thought the usual 15 and 30 years were essentially package deals for which the lender employees were trained and well prepared to explain and offer without having to go through extra work and approvals from their bosses and the lawyers.

[safari]

If the interest rate on the 20 or 25-year mortgage is the same as on the 30-year mortgage, then it makes sense to get the 30-year mortgage and just pay a little extra every month toward the principal, so you'll pay off your loan sooner. You will also have the flexibility of just making the minimum payment, in case of other unexpected bills. If you had taken the 20-year mortgage instead, the minimum payment would have been a lot higher, and you would have no choice but to pay it.

[jIM_Ohio]

The issue comes down to interest rates. The difference between a 15 yr and 30 yr interest rate is around .125% or .25%. The difference between a 20 yr and 30 yr would have a lower spread... not much value, with more risk (IMO).

[disneysteve]

Originally Posted by safari

If the interest rate on the 20 or 25-year mortgage is the same as on the 30-year mortgage, then it makes sense to get the 30-year mortgage.

At least in our case, the rate on the 25-year loan was less than the 30 but more than the 15. Otherwise, I agree that it wouldn't make sense to lock yourself in to a shorter term.

[sweeps]

Originally Posted by safari

If the interest rate on the 20 or 25-year mortgage is the same as on the 30-year mortgage, then it makes sense to get the 30-year mortgage and just pay a little extra every month toward the principal, so you'll pay off your loan sooner. You will also have the flexibility of just making the minimum payment, in case of other unexpected bills. If you had taken the 20-year mortgage instead, the minimum payment would have been a lot higher, and you would have no choice but to pay it.

True, but some people want/need the forced discipline of paying off the mortgage quicker.