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Once you have made the decision to purchase a home, it can be rather
exciting but it can also quickly turn into a nightmare if you do not do your due diligence. The
good news though is that regardless of your financial situation, there are literally hundreds of
loans to choose from. This means that you can be able to find one that meets your needs but which
terms should you choose?
Short term loans compared to long term
loans
Most people who decide on a mortgage loan will think that 15 year short
term loans are better than 30 year terms but this is not always the case. Keep in mind though that
which one you choose will depend on your finances and what you can realistically afford to
pay.
Shorter term loans typically have higher monthly payments which has its
advantages and disadvantages.
The best way to understand the difference is to look at an example. A
$100,000 30 year loan at a 7% interest rate will be about $665 for the monthly payment. On a 15
year loan at 6.75% the mortgage payment will be about $885.
If you chose the 15 year term, then after 5 years you will have paid out
$22,933. However, if you chose the 30 year term, then you will only paid $5,868.
Which one you choose depends on your goals
This amounts to a difference of $17,065 over a span of 5 years. If you are
looking to pay off your house as quickly as possible, then a short term loan may be
ideal.
However, if you are looking to invest in other assets then this extra
money can be used to build and diversify your portfolio. Another advantage of a long term loan is
that it offers more flexibility as you can make higher monthly payments as you like.
Before you sign any type of loan, it is absolutely important that you get
your finances in order and that you know what you can afford to pay.
This will put you in a much better position as you can be able to
negotiate for better rates that work in your favor. If you do decide on a 15 year loan, then be
sure you know all the risks involved before you commit to the higher monthly
payments.
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