From the Mailbag: Shorter Maturity Loan Terms

Question: Can I get a mortgage for less than 30 years? Is that a good deal? – Avi, Westminster, CO

The quick answer is yes & maybe.

Mortgages are available in a variety of loan terms. The two most common are 30 year fixed and 15 year fixed. However, 25 year and 20 year options are becoming more popular with consumers. Many people like the idea of refinancing to a shorter term and paying off their home more quickly. In some instances, dropping the rate will offset the shorter maturity of the new loan and result in paying off faster with the same monthly investment.

The second part of the question is a little harder to discern. Terms such as the 20 year and 25 year often offer little rate incentive. These options do however offer a price incentive. Typically, 12.5bps-25bps ($250-$500 on a $200,000 loan) of a price improvement for these options. So while these options are the same as the 30 year mortgage rate, the consumer does get the benefit of an additional credit from the lender at closing.

Now 15 year fixed mortgages are a different story, they are much more attractive in terms of rate than a 30 year fixed mortgage. The spread between these two products is typically 50bps or ½%. Over time that reduction in rate adds up to a significant lower overall cost of borrowing than a 30 year fixed. The downside, higher payments.

If flexibility and cash flow are your primary concerns, I’d recommend sticking with a 30 year fixed. If you are more interested in paying down the balance on your home, the 15 year fixed mortgage remains the most attractive option available to consumers.

With today’s low rates, consider looking into your options. We’d love to help. Give us a call at 970.455.4131 or “Contact Us” by email for a quick and simple review.