Customized Loan Terms for Your Mortgage

Customized Loan Terms for Your Mortgage
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    Some home loan shoppers are under the impression that they'll be offered a 30-year mortgage or perhaps a 15-year mortgage if they are able to swing the larger monthly payments.


While these two types of loan terms are the best known, they are by no means the only options for consumers.

Mortgage Term Options

A number of lenders may underwrite home loans in five-year or 10-year increments, providing much flexibility for borrowers. Timing your loan term to coincide with your needs makes perfect sense, especially if you plan to retire or sell your home at a time that does not match traditional mortgage terms.

In recent years, 20-year mortgages have become popular especially with refinancers, a trend confirmed by Matthew Robinson, senior public affairs specialist with the Mortgage Bankers Association. Robinson says that “20-year fixed-rate loans are the third most popular mortgage product, behind 30 and 15-year fixed-rate loans, followed by 10 and 25-year mortgages.” Yes, you can even find mortgages for 40 or 50 years, but those longer terms are not common.

Odd Term Mortgages

How do you get these “odd term” mortgages? Essentially, you should ask lenders if they offer them. You can just as easily find that information out by shopping online, but your preferred lender may not publicize it. So, plan to ask your mortgage representative about the terms offered.

Some lenders provide odd-year mortgages. In this case, you may be able to time your mortgage to end with a specific life event. For example, if you plan to retire in 2025, you can ask a lender to provide a 12-year mortgage. Examine the fees and rate structure carefully: you may end up paying more for the odd-year mortgage.

Early Mortgage Pay Off

Borrowers can also create their own mortgage terms by selecting a mortgage and paying it off early. For instance if you want the 12-year loan and the terms for a 15-year loan are more favorable, then you need to determine how much extra you should pay each month to reduce your debt accordingly. You have two choices here: pay a little extra each month or divide your monthly payments in half by paying 50 percent at first of the month and the remaining amount on the 15th. Dividing your payment reduces your interest, effectively ending your mortgage earlier.

Know that mortgage rates for 20-year loans are higher than 15-year mortgages, but lower than 30-year mortgages. The same applies to other mortgage options: the longer the mortgage term, the higher the interest rate. You need to determine what you can afford for your monthly payments and keep in mind that no lender will approve you if your ability to handle higher payments just isn’t there. Much tougher mortgage underwriting requirements have been put in place since the Great Recession; it is important for you to know and understand how these changes effect you.

See AlsoHow to Shop for a Home Loan


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Categories: Home Financing

About Author

Matthew C. Keegan

Matt Keegan is a freelance writer and editor as well as publisher of "Matt's Musings", his personal blog. Matt covers campus, consumer, business and financial topics on various websites and blogs, and has been published in the "Houston Chronicle", "Sam's Club Magazine" and "Wisconsin Golfer".