Selecting the right mortgage is not as easy as simply taking the first loan offered to you by your lender. There are many different mortgage types and there are many different terms that you can select from. Each mortgage option has its own pros and cons, so you need to decide what it is that you want most from your mortgage before you select one.

Choose a Mortgage Term That Fits Your Investment Priorities

The first thing that you need to decide on when shopping for a loan is whether you want lower payments or whether you want to earn equity in your home faster. If you want lower monthly payments then you need to select longer mortgage terms. Currently the longest mortgage term available is 50 years. If you are interested in building equity in your home as fast as possible then you will want to select the shortest loan term that you can afford.

Pros and Cons of Long Mortgage Terms

There are many reasons why people select longer mortgage terms. The first reason is that the longer the mortgage term, the smaller your monthly mortgage payment is going to be. The second reason is that a longer mortgage term allows you to qualify for a higher valued home. Finally a longer mortgage term allows you to use more of your monthly income for other investment opportunities.
 
While longer mortgage terms have a lot of great advantages, they also have several major drawbacks. The first drawback is that most of your mortgage payment during the first 5 years is applied against interest. This means that you will be earning equity in your home very slowly during the first 5 to 10 years of your loan. The second drawback is that it takes 30 or 50 years to pay off long mortgage terms. The third drawback is that mortgages with longer terms tend to charge higher interest rates. This means that you will end up paying substantially more interest with a longer term mortgage then if you had selected a shorter mortgage term.

Pros and Cons of Short Mortgage Terms

Mortgages that offer shorter terms, like a 10 or 15 year mortgage, are the best options to select if you can afford them. They allow you to earn equity in your home fast, and they tend to charge less interest. You can save almost half a point in interest by selecting a 15 year mortgage term over a 30 year mortgage term.
 
Short term mortgages are a great wealth building product, however, they will cost you more per month. You can expect to pay about 22 percent more a month for a 15 year mortgage then you would for a 30 year mortgage. If you can't afford a 15 year mortgage and you still want to shorten your mortgage term, then you should see if you can afford a 20 year mortgage. This term may not provide you with all of the benefits of a 15 year mortgage, but it will allow you to earn equity in your home faster than a 30 year or a 50 year mortgage.