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Mortgage Tenure: More Than Maturity

It can be challenging to navigate the mortgage industry to find the best loan for you. On the one hand, you do have to worry about your monthly payment and whether or not you can afford to keep up with it month-to-month; on the other, you also have to keep in mind the overall loan amount that you will have to pay back. If you are not looking at the numbers carefully, it can be easy to end up paying more than you have to, a situation that only benefits the lender.

When a consumer takes out a mortgage, they agree to a specific term during which they must pay back the loan amount. The most common mortgage term is 30 years. This gives the consumer 30 years to pay back the principal and all interest accrued on the loan. However, mortgage loans aren’t as simple as making a payment of the same amount every month for 360 months—more factors go into how much you pay.

For one, borrowers tend to pay back their mortgages quicker than the term they initially agreed to. Whether it be adding a few extra hundred dollars to their payment each month or making bigger payments when they get extra money with bonuses or tax returns, borrowers rarely allow their mortgage to reach its full maturity. So, that begs the question: what is the advantage of taking a loan with a longer term if you don’t need that long to pay it off?

With any loan, the longer you have to pay it off, the lower the monthly payment will be. When you’re dividing the principal over a larger amount of time, that will result in a smaller amount being due each month. Longer term loans tend to come with higher interest rates, and because of this, the overall amount of the loan ends up being substantially greater since you will have to pay more in interest.

However, with a smaller loan term, like 15 years, you will be paying more in principal each month with a lower interest rate. Your overall monthly payment will be higher because you have to pay off the loan in a shorter period, but the overall amount of your loan will be less since the interest amount is lower.

It’s a hand-off; do you want to have a higher minimum payment per month, or do you want to pay more as a whole? If you know that you can’t afford to put a few more hundred dollars per month in your mortgage payment, taking the longer term may be your only option. Although, if you already plan to put extra money on your mortgage each month, taking the shorter term makes sense.

For most borrowers, the goal should be to minimize interest. By the end of a thirty-year term, you could end up paying thousands of dollars more in interest just to have the ability to pay less per month. And since most people pay more than the minimum payment anyway, there is no point in them taking on the additional interest charges so that they could theoretically pay less.

Mortgage terms aren’t one size fits all. A payment structure that works for one person may not be the best fit for someone else because they have different financial situations. Some lenders even offer custom loan terms tailored to the borrower’s needs. These loans have a manageable monthly payment for your needs while reducing the amount you would pay in interest.

The Confer app will allow borrowers to take out mortgage loans that best fit their needs by bargaining with lenders and third-party providers on behalf of users. It’s a system that favors the borrower because they are the people who know their needs the best. And in comparing the rates offered by several lenders, the app allows users to find their best solution, not just a good one.
When taking out a mortgage, it is vital to use all of the resources you have at your disposal to ensure that you are making the best possible financial decision for yourself. New apps like Confer make the process simpler than ever before by helping borrowers find loans that will give them a manageable monthly payment while reducing their interest rates as low as possible.

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