The pros and cons of a 30-year mortgage loan is a discussion I often have with my clients. They are often shocked by the amount of interest they will pay over a span of 30 years. My suggestion, though, is to get the longest possible amortization.
The longer the amortization, the lower the required payment. This does not mean that you should make that required payment. Virtually all home mortgage loans allow pre-payment without penalty.
This means that most homeowners can have the benefits of a long amortization and still pay the loan off over a much shorter span of time. Having the lower required payment can help when financial problems arise. Whether it be a layoff or a permanent job loss, a health issue, or even just a major car repair, the lower required payment can help avoid a default.
I deal with many loans which are already in default, and sometimes assist my clients in obtaining a mortgage loan modification. It is not uncommon for the modification to re-amortize the debt over 40 years. This provides an even lower payment.
Unless the borrower is certain that future events cannot jeopardize the ability to pay, and so long as the borrower has the ability to prepay without penalty, the longest possible amortization period is best.
The only disadvantage to a 30-year mortgage loan is that the borrower might have a slightly higher interest rate. Even this can be avoided, though, by having a shorter term loan with a 30 year amortization.
Here at Krekeler Strother, we would be happy to answer any follow-up questions.
