Short Term Loans
If you choose a fixed rate mortgage as your principal mortgage,
you have a variety of options concerning the mortgage’s
term. The mortgage’s term refers to the amount of time
used to calculate the loan’s monthly payments. Unless
you choose an option like a biweekly mortgage, or choose to
make early payments, the loan’s term will also be the
amount of time it takes to completely pay off the loan.
Selecting a shorter term carries distinct advantages. A ten-year,
fifteen-year, or even twenty-year term can save you a lot
of money in interest payments in the long run. Though monthly
payments are higher on these loans, you will pay the loan
off more quickly and save money.
Choosing a short-term for your principal mortgage can also
be thought of as an investment, though it does not work in
the same way as a traditional investment. Traditionally, investments
consist of one large sum that produces smaller returns over
time, that hopefully add up to surpass the original investment.
Short-term mortgages, on the other hand, consist of smaller
payments each month with the result of a large return at the
end of the investment.
The investment amount is the difference between the monthly
payment on a similar loan (identical interest rate and fees)
with a longer term and your loan. When you decide to move
and sell your home, you will really see the return on your
investment. Because you have built so much equity through
your higher monthly payments, you will take home much more
of the selling price than you would with a longer loan.
Your actual return on your investment will depend on your
loan’s interest rate and the amount of time you wait
before selling. Shorter term loans also help you save because
they require lower mortgage insurance premiums than loans
with longer terms. This allows you to realize some immediate
savings through choosing a short term loan. If you have the
extra money to pay each month, you might consider going with
a short term loan instead of another investment.
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