You can basically break down mortgages into two sections: fifteen years or thirty years. Use an online mortgage loan calculator from a Web site like QuickenLoans.com (go to mortgage calculators, then to homebuyer tools and monthly payment estimator) to figure out which will work best with your budget, based on the home price range that you’re looking at.
Here are two comparisons:
Total loan price (home price plus closing costs, less down payment):
$150,000
Length of loan: 30 years
Interest rate: 6.5 percent
Monthly payment: $949
Total loan price (home price less down payment): $150,000 Length of loan: 15 years Interest rate: 6.0 percent (shorter-term loans generally have lower interest rates)
Monthly payment: $1,266
As you can see, the fifteen-year loan increases your monthly payment by $317, but the amount of interest saved over the life of the loan is a whopping $130,800, nearly the price of another home! Low interest rates have pushed some home owners to the fifteen-year option (a choice previously unattainable due to double-digit interest rates), although many still opt for the thirty-year loans to avoid higher monthly payments. It’s a decision you’ll have to weigh once you select a home and loan option.
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