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Home Mortgage Loan Term
Whether
you’re buying a home or refinancing your current home, you may assume
your choices for financing with a fixed-rate home loan are limited to a 30- or 15-year term.
While these are the most popular loan choices according to the Mortgage
Bankers Association (MBA), many lenders offer mortgage loans for almost
any loan term you choose.
The MBA says that 15% of all mortgages for refinancing homeowners were for non-traditional terms in June 2012, while only 2% of mortgages for a home purchase were for non-traditional loan terms. In fact, 85% of purchase loans were 30-year fixed-rate loans.
If you’re considering refinancing, a non-traditional mortgage term of 20, 10, or even an oddball term of 17 or 23 years might be attractive because you can time your loan payoff to a particular date, such as your retirement or what would have been the payoff date of your original 30-year loan.
While custom terms of, for instance, 7 or 17 years are not always available from the bigger financial institutions, some lenders such as Chase Mortgage offer fixed-rate loans for 10-, 15-, 20-, 25-, 30-, and 40-year terms.
Shorter loan terms and alternative loan terms have become more popular in recent years for two reasons: First, extremely low interest rates make the monthly payments on shorter mortgages more affordable to borrowers. Second, the recession and scary levels of unemployment have led many consumers to embrace the concept of eliminating all debt, including mortgages.
The MBA says that 15% of all mortgages for refinancing homeowners were for non-traditional terms in June 2012, while only 2% of mortgages for a home purchase were for non-traditional loan terms. In fact, 85% of purchase loans were 30-year fixed-rate loans.
If you’re considering refinancing, a non-traditional mortgage term of 20, 10, or even an oddball term of 17 or 23 years might be attractive because you can time your loan payoff to a particular date, such as your retirement or what would have been the payoff date of your original 30-year loan.
Loan Term Options
Customized loan terms have been available for as long as mortgage loans have existed, particularly from small community banks and credit unions. These days, some of the larger mortgage lenders have jumped into offering individualized mortgage loans. For instance, Quicken Loans heavily advertises its “YOURgage” program, which allows borrowers to choose a loan term from 8 to 30 years with a fixed rate. These loans are available for $25,000 to $417,000. If you are a homeowner, you can refinance up to 95% of your home value, and if you are a buyer, you can purchase a home with a down payment as low as 5%.While custom terms of, for instance, 7 or 17 years are not always available from the bigger financial institutions, some lenders such as Chase Mortgage offer fixed-rate loans for 10-, 15-, 20-, 25-, 30-, and 40-year terms.
Shorter loan terms and alternative loan terms have become more popular in recent years for two reasons: First, extremely low interest rates make the monthly payments on shorter mortgages more affordable to borrowers. Second, the recession and scary levels of unemployment have led many consumers to embrace the concept of eliminating all debt, including mortgages.
Why Choose an Alternative Loan Term?
There are several reasons why you may want to choose an alternative loan term:- Less Interest. Shorter loan terms tend to be more popular with refinancing homeowners rather than buyers. This is because these homeowners have been paying down their loan balance for several years and want to stay on track to pay off their home within the original time frame of their first loan – typically 30 years. If you have a 30-year mortgage and have been making payments for 11 years, you may not want to refinance into another 30-year loan because this means you will be paying interest and making mortgage payments for a much longer time. You can save thousands of dollars in interest payments with a shorter loan term and use that money for other investments.
- Convenient Payoff Date. In addition to wanting to stick to your mortgage schedule, you may want to consider a different loan term so that your mortgage payoff date coincides with your retirement date or when your child starts college. Some refinancing homeowners want their new loan to end when their original loan ends, and therefore shift to a 20-year mortgage if they’ve had their current loan for 10 years.
- Budget Constraints. Both buyers and homeowners may want to choose a customized loan term in order to find the best fit between their housing budget and their mortgage term. For example, if the payments are too high on a 15-year loan, they might be affordable on a 20-year loan, even if the interest rate is slightly higher.
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