If you are thinking of buying a new home, you’ll most likely need a mortgage to complete the process like the majority of Americans. So, you’ll want to know how long is the duration of a home mortgage.
The most common type of mortgage is the 30-year fixed interest mortgage. But other options are available, such as those less than 20 years and up to 50 years. You should consider your finances, employment conditions, and how long you plan to stay in the house when deciding on the right duration.
Beyond this, try using a mortgage calculator to determine your ability to pay a mortgage based on specific terms. This could save you lots of trouble. Here, we discuss how long a home mortgage is borrowed for.
What is a Home Mortgage Duration?
There are lots of terms that come with home mortgages, just like every other kind of loan. Duration is one of those terms. Mortgages need to be paid off within a specific period. This is included in the term of the mortgage as the time frame. Although people usually take out a 30-year mortgage, most people don’t keep the mortgage that long.
The typical mortgage term is below 10 years on average. Within this period, most homeowners refinance the mortgage into a new mortgage, or they buy a new home before the mortgage term is up. According to the National Association of Realtors, most homeowners expect to live in the home for around 15 years.
Types Of Mortgages
There are several types of mortgages. They include:
1. Fixed-Rate Mortgages
This kind of mortgage has a fixed interest rate throughout the entire duration of the loan. The benefit of this loan is that you know monthly payments will be the same throughout the loan terms. So, even if the interest rates rise like it’s currently happening.
2. Variable-rate mortgage
Variable or adjustable mortgages have a fixed interest rate for a specific period. After that, the lender adjusts the interest rates based on market conditions. Thus, your monthly payments can go up or go down. However, the uncertainty can be tricky. The current rise in interest rates due to inflation could make the loans more difficult to pay.
3. Interest-only mortgage
This is a unique mortgage where the terms allow you to pay the only interest rate for a specific period. This is usually between 5 to ten years. After that, you’ll have to pay back interest and principal. That could mean a massive jump in the repayments you have to make.
Common Duration of Mortgages
When it comes to duration, the common mortgage terms are:
1. 30-Year fixed interest rate
The 30-year fixed mortgage interest rate is the most popular and fits most financial situations. This mortgage usually has no prepayment penalties, and homebuyers can increase payments to build home equity faster. It also allows for refinancing should the interest rate drop.
2. Short Term Fixed Interest rate
This defines any mortgage that’s less than 20 years to repay. It’s a generally good deal, especially if you’re planning to move house within that period. It allows you to pay less interest even though you’re paying more monthly to repay the mortgage. This mortgage usually has lower interest rates, meaning those who use it will pay less than half of the interest rates of a 30-year mortgage. It’s ideal for homebuyers who are high-income earners to an extent.
3. 50-year fixed interest rate
This differs from the regular fixed-interest rate mortgage because of the 50-year amortization period. In addition, the borrower can pay a small amount initially towards the loan. It’s good for those homebuyers with strong credits who are focused on investing in the real estate market rather than simply buying a home they want to live in.
Choosing the right mortgage duration
One of the major decisions you’ll make when getting a mortgage is the length. It can be tricky. Consider the following:
1. How long do you plan to stay?
If you’re buying a house where you’ll only be living for a few years, possibly less than 10, it’ll be unnecessary to get a 30-year mortgage. But if you’ll be living in the house for the foreseeable future, which is over 10 years, you can opt for a 30-year mortgage. A mortgage with a shorter duration will mean your monthly repayments will be high. But you save costs on interest rates.
However, paying a long-term mortgage is much easier as the monthly payments are loans. It also gives you more time to pay. It helps to speak with a mortgage specialist to evaluate your options before making a decision.
2. Your Finances
Look at your financial plan before selecting the mortgage term you want. It should be something you can afford to pay for conveniently. Analyze your current income and other bills to get a clear view of what’s good for you.
Also, look at the broader picture. This means examining the other terms of the loan. For example, the type of interest rate and how high it is. If you’re using a variable interest rate, there’s a risk that the rate could go high. This could make a short-term loan even more difficult to repay since the repayment is already high.
3. Employment Conditions
Consider your employment condition. For example, if you plan to retire in the next 20 years. Then you might want to pick a 20-year mortgage so you’ll be done paying by the time you retire. This ensures you don’t have an unpaid mortgage still when you retire.
Use A Mortgage Calculator
A mortgage calculator is one of the best tools to use when considering the right mortgage. This online tool is available on several websites and is easy to use. With it, you can determine whether a mortgage is right for you. But it might not be enough to use a mortgage calculator. So, try talking to a professional before you go ahead to choose the loan duration.
Mortgages are one of the most significant financial burdens that American households take on. So, you need to be very careful when making decisions. Don’t forget that you have other financial goals and commitments. There might be student loans, college funds, retirement, credit card debts, etc., to repay. So go for the most convenient mortgage duration.