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Considering 30-year and 15-year mortgages

On Behalf of | Jul 22, 2019 | Residential Real Estate |

When people in California buy a home, they generally must take out a mortgage loan from a bank in order to do so. Very few people have the cash available to buy their homes outright, so choosing the right mortgage can be a particularly important part of the real estate transaction. There are a number of different options that may be available. For example, first-time homebuyers may have access to some government programs designed to support homeownership, including VA, FHA or USDA loans. Of course, each of these programs has its own eligibility requirements, so a conventional bank loan may be best for some purchasers.

Many banks present both a traditional, 30-year fixed-rate mortgage and a 15-year, short-term loan option. People may be torn about which mortgage to consider when purchasing their own home. While a 30-year mortgage is the overwhelmingly preferred option, some people want a short-term mortgage to access the lower interest rates available for this type of loan. Considering that houses cost hundreds of thousands of dollars and up, even small differences in the interest rate can mean significant savings. In addition, people can accumulate equity in their homes more quickly with their larger monthly payments and shorter loan terms.

Still, short-term loans can be costly. The high monthly payments may lead people to put off other important financial options like saving for retirement. Others may wish to consider a 30-year loan that allows people to pay off their mortgages early, without penalty. This can help to save without the significantly higher mandatory monthly payment of the shorter-term loan.

Choosing the right mortgage is only one of many decisions that goes into a residential real estate purchase. People might work with a real estate attorney to negotiate the contract terms, prepare for the closing and secure the financing to make the purchase possible.