Mortgage Length

With the present economic situation, now seems like the best time to purchase a house. That being said, you need to evaluate the mortgage length, be it a 15 or 30 year deal. Even though the time seems ripe for buying, you still need to be cautious.

How Much Can You Afford?

This seems like a no-brainer, but some people still make mistakes here. To determine how much you can afford, consider your earnings and expenses. Think of your current expenses and how much money you need to set aside for the future (i.e., your kids’ education). This doesn’t count in other possible financial obligations (alimony, credit card debts etc)

Since a mortgage deal is a long term agreement, you also need to consider your future situation. The deal may look good now, but can you still afford the payment when the kids go to college? Of course another important factor when thinking of mortgage lengths is your savings. Make sure you’re still able to set aside some cash.

15 vs. 30 Year Mortgage Terms

Although some mortgages will offer 20 years, most are 15 or 30 years (most have fixed rates). Both have their own pros and cons. The main advantage of a longer deal is that you pay less monthly.

Another advantage is that you are eligible for tax benefits. Their disadvantage is that the interest rates are higher in the long run. It also takes more time to gain equity.

A short term mortgage usually has a lower interest rate. Another advantage of choosing a shorter mortgage length is that equity is built more quickly. The disadvantage is that the monthly payment will be much higher. In addition, you won’t be eligible for any tax perks. Most of the time, short term loans take longer to process.

These are the basic elements in long and short term deals. The terms of agreement will vary greatly, so you need to go over the details. Again, you need to always think of your financial status.

Refinancing

When looking for a loan, go for the one that offers flexible refinancing options. Refinancing means being able to change the mortgage payment structure. If you are on a 30 year mortgage but suddenly able to pay more, you should have it restructured to a shorter term.

If you’re on a short term mortgage length agreement, you should be able to change it to a 30 year term. The procedures required for refinancing can be complicated; make sure you understand the whole deal.

Tips and Warnings

Don’t be in a hurry to get a mortgage. Compare the terms and see which is most advantageous for you. If you’re having trouble computing your finances, there are professional services that can help.

If you have tax issues or problems, be sure to settle them with the IRS first. Go through the terms and agreements with a fine comb; look for any extra / hidden charges. It won’t hurt to get recommendations from friends on the type of deal to get.

Finding the right mortgage length and deal isn’t easy. But extensive analysis of the situation is absolutely needed.