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Shopping for a mortgage means finding the right lender, but it’s not the only important decision. While interest rates, origination fees, and comfort with the loan officer are all critical factors, there’s another difference to consider — and it might need to be at the top of your list.

Before you seek out a pre-approval or start looking at real estate listings, it’s essential to spend some time thinking about the length and details of a loan term. While a 30-year fixed mortgage is the most traditional option, it’s not the only one. And it may not be the best for your situation.

Budget Impact

The first thing to reconcile when reviewing your loan length options is the impact on your buying budget. A shorter loan term means a higher monthly payment. A higher monthly payment means less borrowing power.

If the properties you’re interested in or the values in your area make a 30-year mortgage your only path to homeownership, then it may be an easy choice. On the other hand, if you’re shopping well below the maximum loan you could qualify for, your decision could be more complicated.

Shorter Term = Long-Term Savings

As mentioned, a shorter loan term will increase your payment amount each month. However, that’s not the whole story. Since the interest on a mortgage is calculated annually, cutting years off the loan length means substantial savings.

With a shorter loan term, more of your payment will go toward the principal balance each month, and you will build equity more quickly. It’s also likely that your interest rate will be slightly lower than with a longer loan. Keep in mind that the longer you own the home, the more significant your savings will be. Committing to a shorter loan term benefits those buyers who stay in the house for the life of the loan the most.

Alternative Savings

Fortunately, closing on a shortened loan term is not the only way to enjoy some of the advantages they offer. It’s best to confirm with your lender, but nearly all mortgages allow for prepayment without penalty. This means that homeowners are free to put additional payments toward the principal beyond their required payment amount.

Doing so will avoid interest charges to the balance that is paid off early and result in savings similar to those with a reduced loan term. While you won’t have a lower interest rate, you also won’t have a requirement to make a larger payment, giving your budget more flexibility. Putting unexpected income or raises toward your mortgage as additional principal, or scheduling 26 payments per year to match your paycheck schedule are just some of the ways that homeowners with a 30-year loan can reduce the interest charges they pay during that time.

Work with a lender who understands that different people need different mortgages. The resources at can help guide your search, and our representatives are ready to help answer your questions and help you through the application process. Call or browse our website today to find out more.

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