When choosing a mortgage loan package, you always want to consider all of the loan terms offered to you. In general, they can range from 10 to 30 years, providing an array of options for borrowers no matter what their month-to-month financial situation.
While longer-term loans may seem attractive because of their low monthly mortgage payments, a shorter-term loan can actually save you money. Because you are offering to pay back the loan in a shorter amount of time, which will free that money back up sooner for the financial institution to lend to someone else, the interest rate will be lower on a shorter loan than a longer loan.
However, people often make a simple cognitive error: they think that because they have chosen to repay the loan in a shorter amount of time, they will be paying a lot more each month. However, because of the lower interest rates, the month-to-month payments are often only a hundred dollars or so more expensive. This means that you are saving a lot of money in the long run on interest -- you are paying less interest for a shorter period of time. For those who can afford the small increase, a short-term loan term is a great option.
