Long-Term and Short-Term Mortgages

Any mortgage loan that is taken for the duration more than 30 years is considered to be a long-term mortgage. Conversely any mortgage that has a term for less than 30 years is considered to be a short-term mortgage.

A few years back 30 year mortgages were the most common kind of mortgages that could be found.. Short-term mortgages were not really in vogue. However, you could find short-term mortgages with a balloon payment clause included in them. This means that you paid the fixed monthly amount the same as the 30 year mortgage but at the end of a fixed period such as 10, 15 or 20 years you were expected to make a large payment, also known as a balloon payment, to pay off your mortgage obligation completely.

It goes without saying that the total interest charges on a short-term market is far less as compared to a long-term mortgage. While it is common to find a lower rate of interest on a short-term mortgage, even if the interest rate on both the mortgage is same, a short-term mortgage of 15 years is preferable to a 30 year mortgage. Since you are endeavoring to pay off the mortgage in 15 years the payment is going to be higher as compared to long-term mortgage. However, you can save almost half the amount of money on interest as compared to 30 year mortgage. Generally speaking the 15 year fixed-rate mortgage is about half percent point lower than a 30 year FRM.

Another point to note is that while you may be making higher monthly payments on a short-term mortgage for 15 years, it is precisely for that reason that it may be more difficult to qualify. Because a higher monthly payment will increase your debt to income ratio, it might go beyond the acceptable limits of the lender which is usually that your debt should not exceed 45% of your gross monthly income. Another thing to consider when taking a short-term mortgage is that you should not feel tied up for cash due to the higher monthly payment. You should not be in a position where you feel that your cash reserves are getting so depleted so as to not have a safe financial cushion to account for emergencies. If you are unsure about how much mortgage you can afford, we suggest you go back to the section to see how much mortgage you can really afford.

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