A Home Loan Term is the length of time that you take to pay off your home loan debt in full. When you choose a home loan term, you can choose between shorter-term or longer-term. The decision varies from one person to another. Some people want to pay off their debts as quickly as they can, while others prefer to pay over a longer period of time in exchange for less financial pressure.
The most ideal way to choose which home loan term suits you the best is by comparing the two given terms. Continue reading to find out which term would be ideal for you!
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Main Differences Between Shorter-Term and Longer-Term
- Duration of Repayment – Obviously, the main difference of both home loan terms is the number of years that you’ll spend on paying off your home loan debt. A 15 year-term is the most popular choice for the shorter-term, while a 30 year-term is the standard term for a longer-term home loan. Getting a 30 year-term basically means that you may still be paying off your home loan until your retirement days.
- Monthly Repayment – The overall cost of your home loan dues will be divided into the number of years applied for your home loan term. A shorter-term home loan gets paid off in a smaller number of years, so the monthly repayments will be higher. On the other hand, longer-term home loans mean that your home loan’s total cost will be divided into more years. More years mean cheaper monthly repayments to pay off, but more of them.
- Interest Rate – Your home loan term is one of the main factors used to determine the amount of interest that you end up paying. Basically, long-term home loans have higher interest rates compared to short-term ones. You may be paying less for your monthly repayments, but by the time that you’ve paid of your home loan, you will have paid way more than your property’s original value because of the interest.
At the end of the day, both home loan terms have their own pros and cons. Your decision will be a matter of priority and reasonable thinking. Choose a shorter-term loan if you are confident that you can afford to pay more for monthly repayments. This way, you’ll be paying off your home loan quickly and avoid paying too much for the interest. Choose a longer-term loan if a shorter-term one would be a risk and limit you from living comfortably. Remember, pushing your financial budget to the limit may cause you problems that you don’t expect. Choose wisely!
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