Securing a mortgage can be a stressful process for potential homeowners. Not only will you have to make a large down payment, but you will also have to deal with many monthly mortgage payments. In order to figure out your down payment and debt amount, you’ll likely have to use something like a house payment calculator. However, there are different types of mortgages that you’ll need to choose from. The two most common forms of mortgages are short-term mortgages and long-term mortgages. Each come with there own pros and cons, and each can be better in certain scenarios. So which one is best for you? Let’s take a look.

What Length of Mortgage Is Best?

Short-Term:

One of the biggest benefits of a short-term mortgage is the reduced amount that you have to pay in interest. “Short-term” mortgages are commonly around 15 years, about half the time of a 30-year long term mortgage. This means that your debt has only half the time to accrue interest, something that can potentially save you thousands of dollars in interest payments. In addition, short term mortgages can make you much less susceptible to financial shock and change. Although 15 years is quite a long time, it is still much shorter than the alternative, 30 years. This reduced time means that there is less of a window for things to go bad. If you find yourself out of a job and looking for an income in twenty years, you won’t have to worry about making these debt payments since it would already be completed.

However, even though short-term mortgages have their positives, they also come with some negatives. Since you’re paying your mortgage off much faster, your payments are going to be much higher. You’re effectively paying the same principle, just at a much faster speed. Although you’ll be saving money in the long run, in the short term your mortgage bill will be expensive. In addition, it may be hard to secure a short-term loan since banks and lenders may assume that you don’t have the finances to afford such large debt payments in the short-term. Homebuyers should seek out a short-term mortgage if they currently have a high income and lots of disposable money. This will allow you to pay the high debt bills you will face and finish your mortgage off relatively quickly. Be wary, though, as if you happen to lose your large income, then these large mortgage bills can really pile up. Short-term mortgages are a high risk-high reward strategy that can save you lots of money in the long run if pulled off correctly.

Long-Term:

The other option for mortgages is long-term mortgages. These mortgages typically last around thirty years. One of the main upsides to this type of mortgage is the small payments that you’ll have to make. Since the mortgage is spread out over such a long time, your mortgage payments will be relatively small when compared to a short-term contract. This will offer you much more financial flexibility, allowing you to use your funds elsewhere and not forcing you to throw all of your money into your house. In addition, banks may be more willing to give you long-term mortgages since making payments will not be as difficult as short-term mortgages. That being said, long-term mortgages do have their downsides. Thirty years is a long time, and many things can happen during that time. There will likely be great fluctuations in your income and disposable money during this time period, something that could lead you to be unable to make your mortgage payments.

By increasing the length of your mortgage, you effectively increase the window of time where a negative financial event can impact your ability to make mortgage payments. Not to mention the fact that long-term mortgages are actually much more expensive in the long run. The extra years on your mortgage can really add up, causing you to pay an extra couple thousand dollars in interest payments. A long-term mortgage is recommended for those that may not have extremely high incomes at the moment, but still have enough income to make small payments on a home. A long-term contract will allow you to make small debt payments while you get under your feet and find a job with a higher income. Although you may end up paying more in the long run, a long-term mortgage will give you the financial freedom and flexibility that a short-term loan simply cannot.

Read Also: