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How long of loan should I get?
Home » Real Estate » Obtaining Financing for a House » How long of loan should I get?Choosing between a 30-year loan and a 15-year loan is a case of choosing between paying now or paying later. Although most people get a 30-year mortgage, it's much cheaper to pay off your loan in half that time.
If you take out a 30-year loan, you'll end up paying back that loan three times over. In other words, if you borrow $100,000, you'll end up paying your lender around $300,000 over 30 years because of interest charges. In contrast, if you take out a 15-year loan, you'll have to repay only 1.5 times the amount you borrowed.
There are a couple of variations on this principle of saving money by paying off your loan as quickly as possible. You could, for instance, get a 30-year-loan but resolve to make one extra payment a year. You'd have your loan paid off about 10 years early.
Another way to do this is to get a bi-monthly loan, which lets you make two payments a month. Although each payment is half of a regular monthly payment, by the end of the year, you will have made 26 payments. The result is essentially the same as making an extra payment each year: You'll save tens of thousands of dollars.
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