Every day hundreds (if not thousands) of people throughout California try to determine which loan term is better for them. A 30 year fixed rate term that has a lower monthly payment or a 15 year fixed rate term that pays the home loan down faster. Here are some simple suggestions and ways to look at that might help you decided which term is best.
The Best Mortgage For You:
One thing is for certain; everyone who is refinancing a current mortgage and those looking to purchase a home want to obtain the best mortgage possible. But is that solely defined by how low the interest rate is? If not what other factors are at play?
Two things come to find when thinking about the best mortgage possible. One is the mortgage fees, and the other is affordability. As for fees make sure they are low and if you are buying down the rate make sure you re-coop the buy down cost in a reasonable time frame. If it takes ten years to make up the cost; don't buy down the rate.
As for affordability: It doesn't matter how low the rate is; if you can't afford the payment it's not the best mortgage for you. So when you are trying to figure this out factor in what are the fees and can you afford the monthly payment. There are a lot of people that thought it was a good idea to pay two points to get a slightly lower rate but ended up moving before they realized any of the savings.
30 Year Fixed Mortgage Rate Terms:
A 30 year fixed mortgage rate is when the interest rate and the payment never change. The payment includes both principal and interest and typically there is no balloon payment nor is there typically a pre-payment penalty (confirm with your Loan Officer). The 30 year fixed term is the most popular loan term there is as most people prefer the lower payment that comes with the loan (when compared to a 20, 15 or 10 year fixed rate loan).
With a 30 year fixed rate term you can always pay more to pay down your balance faster.
15 Year Fixed Mortgage Rate Terms:
A 15 year fixed has all the same characteristics as a 30 year fixed term but the only difference is that the loan is for 15 years instead of 30 years. Like a 30 year fixed there usually is not a balloon payment nor a pre-payment penalty but always double check with your Loan Officer. Another similarity is that you can always pay additional funds above your monthly payment requirement if you want to pay down the balance faster.
Which Should You Chose?
I'm sure everyone you've asked has given there two cents on what you should do but the truth is you are the only person that can make this choice. As an experienced mortgage professional with over fifteen years of experienced I can tell you that you definitely don't want to bite off more than you can chew when it comes to a mortgage payment. Especially if you are first time home buyer.
If you are a first time home buyer you should go with a thirty year fixed unless your total debt payments on a fifteen year fixed are less than 20%. If you have previous bought a home or two and you are comfortable with the payment you should strongly consider a 15 year fixed.
Loan Officer Kevin O’Connor
JB Mortgage Capital, Inc.
CA BRE #01499872 – NMLS #247447