From ‘down payment’ to ‘adjustable rate’ to ‘debt-to-income’ ratio, there are so many terms involved in the mortgage process that it can be hard to learn them all and keep them straight. However, whether you’ve heard it, the term ‘amortization period’ might be one of the most important ones associated with your financial well-being. If you’re currently considering the period of loan you should choose, here are some things to think about before taking on a term.
What Is Amortization?
Used to refer to the length of time it takes to pay off your mortgage loan, a typical amortization period is 25 years. However, there are many periods over which homebuyers can choose to pay off their mortgage. While many homeowners opt for what works best for them, it can be the case that a shorter mortgage period will be more financially beneficial eventually. It may not only mean lower overall costs, it may also mean financial freedom from a loan much sooner than originally anticipated.
The ‘Principal’ Of The Matter
It’s important to have a monthly mortgage payment amount that’s sustainable, but a shorter amortization period means that you will be paying a higher amount on the principal and paying more on the actual loan amount. While a longer amortization period will add up to more interest payments and less paid on the loan cost each month, a shorter period can end up costing you less for your home when all’s said and done.
Considering Your Loan Period
It is understood that a shorter amortization period will pay down the principal sooner and cost less over time, but that doesn’t mean that it’s the best choice for you. Because your monthly payment will be taking a sizeable chunk out of your salary, it may be difficult to swing a higher payment to pay off your loan in 10 years. If it’s doable without compromising your quality of life, you may want to choose this option, but if there’s too much sacrifice you may want to opt for a longer loan period.
Everyone has a choice in the amortization period that works for them, but it’s important to make your decision based on what works for you and will be beneficial for your finances. If you’re currently getting prepared to invest in a home, you may want to contact one of our local mortgage professionals for more information.