MortgageHandShakeWhen you're taking out a mortgage on a home, you have many factors to consider. The term of the loan is definitely one of your most important considerations. Mortgages are available with 15-, 30-, 40- and even 50-year terms. How can you determine which is best for you?

How Long will you Stay in the Home?

Start by deciding how long you plan to keep the home. Many people buy a home and sell within a seven-year period. If you know you're simply purchasing the home to live in before moving to another location, the longer term mortgage may be a wise choice for you. After all, if you can pay a lower payment for three years and then sell, you may actually end up saving money on your home. If on the other hand, you plan to retire in your home and live there the rest of your life, you should take out a shorter term mortgage, such as a 20- or even 30-year mortgage.

The difference between a 20-year mortgage and 50-year mortgage is tremendous. The following is an example of what the total payoff will be on mortgages with different terms.

Amount Borrowed: $200,000
Interest Rate: 7.00%
Payment Interest Paid
15-year $ 1,797.66 $123,578.18
30-year $1,330.60 $279,017.80
40-year $1,242.86 $396,574.03
50-year $1,203.38 $522,026.15


As shown above, the difference between the payment of a 15-year mortgage and a 50-year mortgage is approximately $600. However, in choosing a 50-year term, you will find yourself paying almost $400,000 more on interest. If you choose to take out a 50- year mortgage on a home you plan to live in the rest of your life, you will be paying over $700,000 in total for a $200,000 home.

Smart Planning Now Can Pay Big Dividends Over Time

You don't need to overpay on your home. If you plan to live in the home for a short period before moving, take out the longer loan and save some money on the interest. However, if this will be your home indefinitely, it is much wiser to take out a shorter term loan and save yourself the money on interest, unless you are of an age where you will not be around for the life of the loan. For example, if you're a 50-year-old who takes out a 50-year mortgage on a retirement home, it may be a wise decision. After all, most people do not live long enough to pay off their mortgage.

Take some time now to determine which path makes the most sense for you. A wise choice now can pay major dividends down the road.