How does the length of my mortgage term impact my monthly payment and overall cost of borrowing?
Curious about Mortgages
The length of your mortgage term can have a significant impact on your monthly payment and the overall cost of borrowing. A longer term generally means lower monthly payments, but a higher overall cost of borrowing due to the additional interest paid over the life of the loan. On the other hand, a shorter term means higher monthly payments, but a lower overall cost of borrowing as less interest is paid over the life of the loan.
For example, if you have a 30year fixedrate mortgage with a $200,000 loan amount and a 4% interest rate, your monthly payment would be around $954. If you keep the loan for the entire 30year term, you will end up paying a total of $343,739, which includes $143,739 in interest.
However, if you have a 15year fixedrate mortgage with the same loan amount and interest rate, your monthly payment would be around $1,479. If you keep the loan for the entire 15year term, you will end up paying a total of $266,289, which includes $66,289 in interest.
So, while a shorter term can save you money in the long run, it is important to consider your budget and financial goals when deciding on the length of your mortgage term.