Two of the most common mortgage loan terms are the 30-year mortgage and the 15-year mortgage. First time home buyers typically choose the 30-year mortgage because of its lower monthly payments. The amount of the home loan is spread out in monthly installments to be paid out over the course of 30 years, totaling 360 installments, while the 15-year mortgage is paid in monthly installments over the course of 15 years, totaling 180 installments. For instance, the mortgage payment on a $100,000 house with a 7.5% interest rate is only $699 per month. Compare this amount to the $913 monthly payment from a 15-year mortgage with a 7.25% interest rate. The lower monthly payments of the 30-year mortgage allow buyers to save more of their money at the present time.

However, after ten years, buyers with a 15-year mortgage will have paid about half of their balance while buyers with a 30-year mortgage will have paid less than 15% of the total amount. This is a significant difference in the amount of equity that is acquired. Buyers who want to build equity quickly and can afford the higher monthly payments often opt for the 15-year mortgage loan term. A longer home loan period does offers you more flexibility in that if your financial situation were to take a turn for the worse, for example, you just lost your job and jobless for the past few months. A lower monthly home loan payment helps to alleviate some of the financial problems. The longer or shorter home loan plan? If you have the financial knowledge and your financial situation is stable, it would be a good choice to take the 30-year loan and invest the savings otherwise pay towards the monthly payments.

The long term payoff of your investment may match or exceeds the money you go towards repaying your home loan. On the other hand, if you do not have the financial stability and knowledge, a shorter home loan is better for you. Yes, you do pay more each month but overall you will pay less for the home loan plan. Also you get to accrue equity in your home much faster which can be used to improve your credit score or FICO.