The benefits of Shorter Loan Terms explained
The Benefits of Shorter Loan Terms Explained
One of the biggest decisions in obtaining a mortgage is choosing the loan term. The term refers to the length of time you will be repaying the loan. Generally, the two most common loan terms are 15-year and 30-year mortgages. In this article, we will discuss the benefits of choosing a shorter loan term and how it can save you money in the long run.
Lower Interest Rates
One of the biggest advantages of a shorter loan term is that it typically comes with lower interest rates. This is because banks and lenders perceive shorter loan terms as less risky. With a shorter loan term, the lender is guaranteed to receive their money back sooner, and therefore they may offer lower interest rates to entice borrowers to choose this option.
Lower Overall Costs
In addition to lower interest rates, shorter loan terms often lead to lower overall costs. This is because you will be paying interest for a shorter period of time. Although your monthly payments may be higher, you will ultimately end up paying less in interest charges over the life of the loan.
Build Equity Faster
When you choose a shorter loan term, you also have the opportunity to build equity in your home faster. This is because a larger portion of your monthly payment goes toward paying off the principal balance. With a 15-year mortgage, you can often build equity in your home twice as fast as with a 30-year mortgage.
Freedom from Debt Sooner
If you choose a shorter loan term, you will have the satisfaction of paying off your mortgage sooner. This can be a significant benefit both financially and emotionally. Without a mortgage payment, you will have greater financial flexibility, so you can save more for retirement, invest in other areas, or splurge on something you’ve always dreamed of owning.
Less Stress with Shorter Loan Terms
Finally, one of the biggest benefits of choosing a shorter loan term is the reduction in stress. With a shorter loan term, you are able to pay off your mortgage sooner, and therefore, you can rest easy knowing that you will own your home outright in a shorter amount of time. This can be a significant relief, especially if you are nearing retirement or looking to accomplish other financial goals.
Listed Benefits of Shorter Loan Terms:
- Lower Interest Rates
- Lower Overall Costs
- Build Equity Faster
- Freedom from Debt Sooner
- Less Stress
Overall, a shorter loan term can provide a host of benefits. While monthly payments may be higher, shorter loan terms can potentially save you thousands of dollars in interest charges over the life of the loan. Additionally, a shorter loan term can provide peace of mind, reduce stress, and allow you to achieve other financial goals sooner.