Does the Length of Time I Plan to Live in My Home Affect the Length of My Mortgage?

Once you lock down a mortgage, you have that loan term until you either refinance, sell, or pay it off. Outside of some assistance programs, you will not be penalized for ending the loan term early. However, it does take some thought to choose the right loan term based on your plans. 

Here’s what you need to know about the relationship between how long you plan to stay in the home and the best-fit loan term for you.  

❌ Forever Home  

The first type of loan program that comes to mind when we hear “short term” is an adjustable-rate mortgage. For an initial term of 5, 7, or 10 years, buyers may get a better interest rate than if they opted for a fixed-rate mortgage. The risk of paying higher, variable interest rates afterward, while it should be considered, might not be such a big deal if the buyer has a solid plan to move before the initial term is over. 

On the other hand, if your first thought when you hear “variable” is “no way,” we recommend a 30-year fixed-rate mortgage. The low monthly payment is locked in for well beyond the length of their plan, while allowing you to build equity in the meantime.  

✅ Forever Home 

It may seem counterintuitive to some, but a 15-year fixed-rate mortgage is most beneficial for buyers looking for a home to live in for the foreseeable future. The higher monthly payment pays off when… 

• The homeowner reaches a point down the road in their mortgage term when payments start making a significant dent in the principal, rather than a higher allocation toward interest 

In other words, the sooner someone with a 15-year mortgage sells their home, the closer the amount of equity they have built is to the amount they would have built by taking on a 30-year mortgage. So, they might as well have gone with the lower monthly payment of a 30-year mortgage.  

• The homeowner pays off the mortgage sooner to achieve the financial freedom of living mortgage-free, rather than making large payments and going from one loan to the next

It’s worth noting that there’s a reason 30-year fixed mortgages are the most common choice. They’re a great option, no matter the length of time you spend in your home. And making additional principal payments each month will get you to financial freedom quickly as well. 

The more considerations you discover that are put into each home-buying decision, the more comfortable you will be with the overall decision to buy a home. If you need a little more guidance to start enjoying your home search, we’re here for you.