If you’re ready to buy a home, then more likely than not you’re researching your mortgage options. Deciding on the lender and the type of home loan are two pivotal decisions. The length of your mortgage and your interest rate will determine your monthly payments. You may wonder if you can customize your mortgage terms beyond the standard 15- or 30-year options.
Holden Lewis, home and mortgage Expert at NerdWallet, explains the term of a mortgage is the length of its lifespan.
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“If your payments are set up to repay the mortgage in 30 years, the loan has a 30-year term. If the payments would pay off the mortgage in 15 years, it has a 15-year term,” Lewis tells FOX Business.
Typically, mortgages are 15 or 30 years. As a borrower, you can request a term that fits best for your finances, and then you can fine-tune it, Lewis says.
“For example, if you want to pay off the mortgage in 18 years, the lender might charge fees for a 30-year loan, but adjust your payments so that the mortgage is repaid in 18 years,” he explains.
When talking with a loan officer, Lewis advises the word to use is “amortize,” as in, “I would like to amortize this loan over 18 years instead of 30.”
According to Lewis, this could be that a borrower wants to make the final house payment before you retire, or you’re eager to be debt-free as young as possible.
The drawback to having a short mortgage term is that it robs you of the flexibility of a 30-year mortgage, says Lewis. For instance, someone who wants to pay off a loan in 15 years.
“If you get a 30-year loan, you can make extra payments every month with the goal of retiring the debt in 15 years,” Lewis tells FOX Business. “But if you’re laid off or get socked with unexpected expenses, you can stop making extra payments until you catch up financially.” On the other hand, if you get a 15-year mortgage, you’re stuck with higher minimum payments every month, Lewis says.
Bill Banfield, executive vice president of Rocket Mortgage, says the company created something called the YOURgage – a fully customizable mortgage term – providing a fixed-rate loan term from eight to 30 years.
“This can provide flexibility to have a loan that fits into each homeowner’s unique life,” says Banfield.
If someone wants to tailor the term of a loan to fit a certain mortgage payoff timeline and monthly budget goals, Banfield tells FOX Business that custom loan terms may be a good fit.
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Some other scenarios where borrowers may opt for custom mortgages can include:
Perhaps a homeowner wants to ensure they no longer have a mortgage payment the year their child goes to college, or when they retire and leave the workforce, says Banfield.
According to Banfield, some borrowers may be four years into their mortgage when they refinance, but they don’t want to start over at 30 or jump down to a 15-year mortgage.
“They can choose a 26-year loan and keep the same payoff schedule they had on their previous mortgage,” he notes.
Some may even choose a 29-year instead of a 30-year mortgage to shave a year off their loan without an impact on their budget since it would only be a few extra dollars each month, Banfield says.
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Banfield tells FOX Business that each homeowner’s situation is different, and it’s important for a person to realize they have a say in one of the largest financial decisions of their lives.