With mortgage rates having risen over the past year, more mortgage borrowers are exploring ways to reduce their interest costs. One of these options are shorter-term loans – loans that are schedule to be repaid in less time. While 30-year mortgages are most popular, shorter terms, such as 15-year mortgages, are also available. A shorter mortgage term requires a larger monthly payment than a comparable longer-term loan, but the tradeoff often comes with attractive benefits. Here are the advantages of a shorter mortgage term.
Lower interest rates
Shorter-term loans typically offer lower interest rates than comparable longer-term loans. This is because it is less risky for lenders to lend for shorter periods of time than longer periods. Having a lower interest rate could save you hundreds or thousands of dollars a year compared to a similar loan with a higher rate.
Quicker scheduled payoff
It’s usually possible to pay off any mortgage early, although prepayment penalties and restrictions apply in some situations. However, the shorter the term of your mortgage, the earlier you will be scheduled to pay it off. Paying off a mortgage in 15 years rather than 30 could save you thousands more in interest, build your home equity and net worth much faster and reach the milestone of mortgage-free living in half the time. If you need help sticking to a quicker mortgage payoff schedule, a short-term mortgage can offer just that.
While shorter-term mortgages can offer big savings, their higher monthly payments mean they are not for everyone. For a free mortgage consultation to discuss which mortgage options are right for you, get in touch today.