The term of a mortgage refers to the number of years the mortgage is established for. Mortgage terms are generally 15, 20, 30 and 40 years. The vast majority of mortgages are 30-year mortgages.

When considering the term of the mortgage to apply for, keep in mind that only highly qualified applicants will be approved for 15 and 20 year mortgages. These shorter term mortgages have substantially higher payments, but the homeowner can save hundreds of thousands of dollars over the life of the mortgage by paying less interest.

Benefits of Short-Term Loans
Those considering a 15 or 20 year mortgage in order to save interest in the long-term can also apply for, and obtain, a 30-year mortgage and make additional payments towards principle. Remember to find out precisely how to make these extra payments. Some lenders take the extra payment and apply it to the following months payment rather than directly towards principal. Others will apply it toward the principal, so find out what you need to do to apply it properly.

Also, keep in mind that most real estate contracts will have a mortgage contingency clause that gives you an "out" in case you are not approved for your mortgage. In most cases, the contingency clause is based on your ability to be approved for a 30-year, fixed-rate mortgage, so failure to get a 15, 20 or 40 year mortgage would not be sufficient grounds to terminate the contract and get your down payment back.

New, Longer-Term Mortgages
40-year mortgages do exist, and some lenders are even offering 50-year mortgages. These longer term mortgages will lower your monthly payment, but they will also result in a much higher life-time payment since you are paying interest over an additional 10 or 20 years. These mortgages are popular with those homebuyers who need to keep their initial payments low and expect to refinance down the road.

The Adjustable Rate Mortgage
Added to all of this talk about terms is the fact that you may also apply for an adjustable rate mortgage, or ARM. These mortgages are generally 30 years long. The ARM starts with fixed-rate interest for the initial period (generally 3, 5 or 7 years) and then becomes adjustable rate (based on prevailing rates at the time) for the remainder of the term.

What Terms are Right for You?
The right mortgage term for you will depend on your unique circumstances. Thats why its important to have a realistic idea of your future plans and discuss them with your mortgage lender. Ask for amortization schedules so you can see the difference in monthly payments and overall payments based on the various mortgage terms available to you. An informed decision is the best decision.

* Copyright 2006, Brandon Cornett. You may republish this article if you keep the byline and authors note, and also leave the hyperlinks active.

About the Author