30 Year vs. 15 Year Mortgages

Discussions of mortgages often focus on interest rates, but there is a much more basic decision to make. Should you go with a 30 year mortgage term or a 15 year mortgage term?

30 Year vs. 15 Year Mortgages

Any discussion of mortgages tends to turn on two points. How can you qualify for the most money with the lowest payment? How can you get the lowest interest rate for the mortgage? While these are two important issues, there is an addition one that people fail to consider, resulting in significant wasted money.

The term of a mortgage is extremely critical for a couple of reason. First, it sets the length of the obligation you are undertaking. Second, it defines the amount of interest you are going to pay over the life of the loan. These are huge issues when it comes to building equity.

The longer the loan, the more total interest you are going to pay. The trade off, of course, is you are going to have smaller monthly payments the farther you stretch out the obligation. While this may sound like a good goal when you first get the mortgage, it can backfire on you in the long run.

Most people focus on interest rates as a way to save money on mortgages. This is a valid approach, but playing with the length of the loan is a better way to save money. If you can cut the payments in half by going with a shorter loan, you can save huge amounts on the total interest repaid to a lender.

The decision on the term of the loan is relatively simple, but entirely dependent upon your personal situation. There is no absolutely correct choice. First, you need to determine if you can comfortably afford the higher payments that come with a shorter term loan. In general, a 15 year mortgage will have payments 20 to 25 percent higher than a 30 year loan. Of course, you will pay the loan off faster, to wit, be building equity in the home quicker.

The modern mortgage industry has a variety of different term length products. When applying for a loan, take the time to evaluate the different terms to see if you can find a loan that is perfect for your situation.

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Second Mortgages: What you Need to Know

At times in life it may be necessary to come up with a sum of cash for unexpected expenses or even expenses that you might not be able to afford without a influx of cash. In these cases a second mortgage can come in quite handy. Before taking out a second mortgage; however, you should know how they work and the advantages and disadvantages of second mortgages.

Basically a second mortgage occurs when you take out another mortgage on top of the existing mortgage on your home. This type of loan is secured with the property for collateral. Of course, the first mortgage takes precedence in the event that you default on the loan. Any funds that are left would then be applied to the second mortgage.

Many people commonly use second mortgages for such expenses as home improvements, the purchase of a second or vacation home and to consolidate other debts with a lower interest rate. Of course, you may also be able to use the proceeds of your second mortgage for other options but you should always keep in mind that you are putting your home at risk for the purchase and be sure you can justify the risk for that purpose.

One of the major disadvantages of a second mortgage is that the interest rate will usually be higher than your first mortgage. Lenders insist on higher interest rates because they understand they won’t be the first in line in the event that you default on the loan and they need to protect their assets, so they do this with higher interest rates. Of course, the rates are typically lower than what you could obtain with any other type of loan and much lower than credit cards.

You should also be aware that you’ll typically be responsible for some fairly significant closing costs on second mortgages. If you can’t pay those fees, you may not be able to work out a second mortgage on your property.

Due to the amount of risk involved you need to be absolutely sure you have no other option before taking out such a loan. After all, you are risking the loss of your home, so you should be sure you’re willing to take the risk as well as be relatively sure you can cover the additional loan payments.

If you do decide a second mortgage is the right option for you, be sure to shop around for rates before taking the first one offered to you. You may be able to get better terms or a lower interest rate by shopping around.

Always look over the terms to be sure of what you’re agreeing to pay. One of the most typical arrangements with many second mortgage lenders is to tie what is known as voluntary insurance in with your mortgage. Depending on the level of your current insurance policy, you may not need this additional coverage and cost. In addition, always make sure you know how much you’re paying for closing costs, such as application fees, points to get a lower interest rate and appraisal fees.

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