The 30-year mortgage is traditionally the most popular choice, attracting people with the lowest monthly payment. This type of loan is often recommended for home buyers living on a fixed income, a set budget, or those planning on living in their home for more than five years.Â
If interest rates increase, the loan rate will remain the same. Unfortunately should rates decline below the set interest rate on the loan, the only way to change it is to refinance the mortgage and incur a loss of equity or additional closing costs to take advantage of the lower interest rate.
However, the trade-off for that low payment is a significantly higher overall cost because the extra decade, or more, in the term is devoted primarily to paying interest. The monthly payments for shorter-term mortgages are higher so that the principal is repaid in a shorter time frame. Also, shorter-term mortgages offer a lower interest rate, which allows for a larger amount of principal repaid with each mortgage payment, so shorter-term mortgages cost significantly less overall.
