4 Signs A 30-Year Fixed Mortgage Is Not Right For You

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4 Signs A 30-Year Fixed Mortgage Is Not Right For You

25 September 2017
 Categories: , Blog

Buying a home is an exciting process, but it can be filled with many questions and concerns. From closing costs and interest rates to preapprovals and prequalification's, it is easy to see how so many buyers are overwhelmed. A 30-year fixed mortgage is the most common loan option for buyers, since the longer term will equal smaller monthly payments compared to a shorter term loan. However, a longer term may not be right for you or your finances. If one or more of these signs apply to you and your situation, a 30-year fixed home loan is not ideal for you.

You Want to Pay Off Your Home Early

The longer your mortgage term is, the more interest you will pay over time. If you have high hopes of paying your home loan off early, a 30-year fixed loan may not be right for you. 

Your monthly payments over a loan term of 30 years may be lower, but the interest charges will add up over this length of time. To pay your loan off earlier, even though payments will be higher each month, opt for a 15-year fixed home loan.

You are Planning to Move In a Year

A home is a large investment and you will not see a return on this investment for a few years. The total interest and closing costs required for a 30-year conventional loan will not be worthwhile if you plan to move within a year or two.

A longer home loan makes the most financial sense if you buy a home that you hope to stay in for longer than a few years.

If you want to sell to earn a profit or you expect a relocation is imminent, consider a loan with the shorter amount of years even though your monthly payments will be higher.

You Lack Cash

If you do not have the cash available for a larger down payment, you will not have the cash available for other things you need in life. From starting a business or contributing to college or retirement funds, available cash is important.

Keeping what cash you DO Have on hand is possible while still buying a loan. You and your lender can find a loan option suited to your financial needs.

For example, a 15-year fixed loan will require less down payment without any worry of paying a monthly PMI. This shorter term loan may have higher monthly  payments, but the availability of cash is a worthwhile trade for many.

Also, an ARM, or adjustable rate mortgage, may also be an option if you prefer to keep hold of your cash. Early in these loans, your payments will be a great deal lower, allowing you to save money each month. As the loan progresses, your interest rates and payments will increase. If you are planning to sell in the near future, the future increase in interest and payments will not be a burden.

You Are Retiring Soon

Whether you are choosing to downsize and buy a smaller home or you are refinancing an existing home, a 30-year fixed mortgage is not ideal if you plan to retire within a few years.

Paying a mortgage while living on a smaller retirement income may seem possible, but it can become financially and emotionally overwhelming.

Consider a loan with a shorter term that will ensure your home is paid off, or almost paid off, by the time you retire.

Even though it is considered normal, a 30-year fixed loan may not be right for your needs. Contact your bank, mortgage company, or financial expert to determine if you and your finances are prepared for this common type of loan.