Should I Get a 30-Year Fixed Rate Mortgage or a 20-Year?
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Lower Monthly Payments
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Taking out a 30-year fixed rate mortgage will give you more flexibility with how much you can borrow because of the lower monthly payments. For example, a $250,000, 30-year fixed rate mortgage at 6.5 percent interest would have a monthly payment of $1,580.17, while a 20-year mortgage with the same terms would have a monthly payment of $1,863.93.
Building Equity Faster
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With a 20-year fixed-rate mortgage, you will build equity in your home much more quickly, particularly during the first few years, because a smaller portion of your payment will go towards interest. This will allow you to pay significantly less interest on the mortgage over the term of the loan.
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Bottom Line
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The best loan term for you depends on what you can afford for a monthly payment. If you need a lower payment because you want to buy a more expensive home, a 30-year mortgage may be your only option even though it will cost you more in interest over the life of the loan.
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