If you want to buy a house and pay it off as fast as possible, you could choose a 15-year mortgage loan. The downside to a 15-year loan, though, is the higher payments you will have. Paying off a home in 15 years versus 30 years makes a big difference in the payment amount. Because of this, it is often safer to choose a 30-year home loan instead. If you have a 30-year loan, you can still pay it off sooner, if you want to. Here are a couple of things to understand about this.
A 30-Year Loan Gives You More Flexibility
A 30-year loan requires making 360 monthly payments. When you make the last one, you pay off your loan. The benefit of taking a 30-year loan is the flexibility that it provides for your budget. The payments will be significantly lower for the loan than if you had selected a 15-year loan. A 15-year loan requires repaying the money in only 180 payments. People like 15-year loans because it is half the time as a traditional loan. People do not like these, though, because of the higher payments. You'll have more flexibility in your budget if you spread it out over 360 payments.
Find Out If You Have a Prepayment Penalty on Your Loan
If you choose a 30-year loan and want to pay it off sooner, you might be able to. The one thing you'll need to find out is if your loan has a prepayment penalty. Most home loans do not, but there are rare occasions when they do. If you agreed to a prepayment penalty, it means that you will pay a fee if you pay the loan off sooner than its due date.
You Can Pay It Off Faster
If you do not have a prepayment penalty, there are several ways to pay off a 30-year loan faster. The first option is by adding extra money to your payment each month. For example, if your payment is $1225 a month, consider paying $1,300 a month. You could pay an extra $75 a month by doing this, and this could help you cut time off your loan. You can also make an extra mortgage payment at any time, which would also help you accelerate your loan.
As you prepare to get a home loan, keep these things in mind. It may be wiser to take a 30-year loan for these reasons, and you can talk to a mortgage lender to learn more.