How Long Term Loans Can Be a Better Deal Than Short Term Loans


Once you have made the decision to purchase a home, it can be rather exciting but it can also quickly turn into a nightmare if you do not do your due diligence.

The good news though is that regardless of your financial situation, there are literally hundreds of loans to choose from. This means that you can be able to find one that meets your needs but which terms should you choose?

Short term loans compared to long term loans

Most people who decide on a mortgage loan will think that 15 year short term loans are better than 30 year terms but this is not always the case. Keep in mind though that which one you choose will depend on your finances and what you can realistically afford to pay. Shorter term loans typically have higher monthly payments which has its advantages and disadvantages.

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The best way to understand the difference is to look at an example. A $100,000 30 year loan at a 7% interest rate will be about $665 for the monthly payment. On a 15 year loan at 6.75% the mortgage payment will be about $885. If you chose the 15 year term, then after 5 years you will have paid out $22,933. However, if you chose the 30 year term, then you will only paid $5,868.

Which one you choose depends on your goals

This amounts to a difference of $17,065 over a span of 5 years. If you are looking to pay off your house as quickly as possible, then a short term loan may be ideal. However, if you are looking to invest in other assets then this extra money can be used to build and diversify your portfolio.

Another advantage of a long term loan is that it offers more flexibility as you can make higher monthly payments as you like.

Before you sign any type of loan, it is absolutely important that you get your finances in order and that you know what you can afford to pay.

This will put you in a much better position as you can be able to negotiate for better rates that work in your favor. If you do decide on a 15 year loan, then be sure you know all the risks involved before you commit to the higher monthly payments.


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