First-Time Home Loan vs. Experienced Homeowner Loan?
First-time buyers are typically concerned with having low-monthly payments because these buyers tend to be young and have relatively low income. Because of this, first-time buyers generally prefer the 30-year fixed rate mortgage, which is by far the most popular type of mortgage in the United States. This loan has a conservative fixed interest rate that is locked in place for the full duration of the loan. Monthly payments are scheduled over the course of 30 years, and these payments are the same amount every month. The primary advantages of a 30-year fixed rate mortgage are:
- Lower monthly payments are generally easier to keep up with, which helps these first-time homeowners have the best chance of avoiding late payments and foreclosure
- The fixed interest rate is easy to work into a budget because the monthly payment is the same from one year to another, saving these first-time buyers from the shock of a higher payment that is possible with an adjustable interest rate.
- 30 years of payments seems reasonable for many first-time buyers who are young and have several decades before they even think about retirement.
One exception to consider is that first-time buyers who plan to sell or refinance their home within five years should consider a 30-year 5-1 adjustable rate mortgage, instead. This mortgage comes with a lower interest rate than a fixed-rate mortgage for the first five years, and if the buyer is planning to sell by then, it makes sense to save money with a lower interest rate.
Best Experienced Homeowner Loan: 15-Year Fixed Rate Mortgage
Experienced homeowners likely go into their home purchase with a significant down payment from the sale of their previous homes, making the new mortgage for a relatively small amount. In addition, these homeowners typically have higher incomes from being further along in their careers. Because of these factors, many experienced homeowners opt for a 15-year fixed rate mortgage, which has higher monthly payments than a 30-year fixed rate mortgage on the same loan amount would, but also has some major benefits:
- Homeowners save thousands of dollars (and often tens of thousands of dollars) on interest over the life of the loan because a 15-year fixed rate mortgage has a lower interest rate and a shorter repayment period during which they are paying interest.
- A higher proportion of each monthly payment goes toward paying the principal balance than it would on a 30-year mortgage, which allows the homeowner to build equity more quickly.
- Older homeowners often want to finish paying off a mortgage before retirement or before sending kids to college, and a 15-year mortgage can help make this goal a reality. If you would rather have a 10-year mortgage or 20-year mortgage, our loan officers at United Home Loans can work with you to create the mortgage you are looking for .
Choosing the Right Home Loan for You
Every buyer has a slightly different financial situation, and you might not fit the mold of the typical first-time buyer or experienced homeowner. That’s why it’s important to discuss your needs with a lender and get professional input to help you make a decision. Contact us below or at 708-531-8388 for more information.