September 27th, 2017 7:08 AM by Jackie A. Graves
The 30-year fixed-rate mortgage is
the most common way Americans attain homeownership. It’s so commonplace that
most people seem to take for granted that it’s the best option for them. But
putting yourself on the hook for thirty years is a big deal and should be
treated as such. It’s certainly not your only option. Let’s run through the
major pros and cons of a 30-year mortgage and two other less common options.
With this strategy, you take out
a 30-year mortgage, but plan to put extra payments towards principal over the loan to pay it off sooner. There are
many ways to do this (putting extra towards principal each month, putting big
chunks down here and there) but the bottom line is that you throw extra money
at the mortgage principal whenever you can. If you do this, you will pay the
mortgage off early and save money in the process. However, you still have the
flexibility of making just the lower required payment if cash flows get tight.
If you plan to do this, you must make sure your loan contract specifies that
there are not prepayment penalties.
if you are a potential homebuyer, don’t just assume that a 30-year mortgage is
your best bet because the monthly payments are lower. As you can see, picking
the right mortgage term for your financial situation is complicated. What’s
important is that you consider the pros and cons of multiple home financing
options before you make any big commitment.
By Rachel Podnos, JD, CFP® -
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