How Long Should It Take to Pay Off a Mortgage?

by Ashley Wirgau

Although it feels like it will take the rest of your life, your mortgage does actually have an end-date. That date, however faraway it might seem, will come eventually, and the giant celebration you’re prepared to throw will be so very satisfying – so why not get to the party a little quicker? Well, because faster isn’t always better, but then again, sometimes it is. When considering mortgage terms, each option has its ups and downs. It is essential to really evaluate the numbers before jumping to make a selection because rushing that party date might end the chance of celebration altogether.

From a 15-year to a 40, there are advantages to each loan term available, so let’s review them one at a time to learn which might be the best fit for you. Then, spend some time with our Ruoff mortgage calculator to really crunch the numbers before sending out your Save the Dates.

The Fifteen

In the grand scheme of things, the 15-year mortgage will cost the least. With both a lower average interest rate and a lower total amount of interest paid, it is by far the most cost-effective option. Additionally, it helps build equity much faster, allowing the potential for home-equity loans and similar types of lending should the homeowner require additional lending down the road. For buyers looking to pay the least over the life of the loan, this is the best term; however, it has its downfalls.

The payments on this shorter length loan are considerably higher making them a less affordable option for some homeowners. Given the steeper monthly payment, the amount of house one is able to afford is also more limited, while longer-term loans allow for lower payments, widening the buyer’s price range. Finally, the 15-year mortgage is also the riskiest as it ties the borrower to a hefty payment that could prove difficult to meet should finances hit a hiccup like job loss, unforeseen medical issues or divorce. Any one of these hiccups could spell disaster for your chance of a payoff party.

The Thirty

Debt.org surmises that nearly 90% of all homeowners elect to sign on a 30-year option, and honestly, that makes a lot of sense. A 30-year fixed rate mortgage provides the most stable and secure path to homeownership as the longer term lowers the average monthly payment and the interest is not subject to change. As mentioned above, it also helps buyers with less resources afford more house as the total price is broken out over 15 more years. Seems like a no-brainer, right? Well, it all depends.

Buyers who opt for a 30-year and utilize the full amount of time to pay off the loan will pay significantly more in interest over the life of the loan. For example, on a $300,000 house at a 4% interest rate with the standard 20% down, borrowers would expect to pay $92,943 more in interest over the duration of a 30-year than a 15-year, so the difference is quite sizeable. That being said, most loans of this type pose no penalty for early payoff, so making additional or larger payments to the principal can help to decrease this giant gap. Check out Nerdwallet’s 15-year vs. 30-year mortgage calculator and plug in your own numbers to see how large of an impact the time difference will have in your specific scenario.     

The Forty

Though not a traditional choice and quite rare, some lenders do offer a 40-year term option which drives down that monthly payment even further. Much like the pattern we’ve already outlined, though, the longer the loan, the greater the overall expense. As it is both difficult to locate a bank willing to work with this type of loan and it results in the greatest total interest paid, the 40-year is likely the last choice for buyers, but might be worth a look if manageable payments are a high priority. Then again, 40 years is a long time to wait for that party.

There are few things in this world as gratifying as making that final mortgage payment, and while it would be understandable to want the get to that last bill as quickly as possible, it isn’t always the wisest choice depending on the borrower’s budget. Deciding on mortgage terms requires buyers to get really honest with their financial capacity and goals because a misstep at the beginning of the homebuying process can result in significant money wasted over the life of the loan, leaving fewer funds left to celebrate that final payment.

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