When it comes to getting a mortgage, many people default to a 25-year amortization without giving much thought to other options. However, choosing a 30-year amortization can have a lot of benefits that may be overlooked at first glance.
One of the biggest misconceptions about a 30-year amortization is that it will automatically result in paying more interest and taking longer to pay off the mortgage. While this may be true in some cases, it is not necessarily always the case.
For many people, having a lower monthly mortgage payment is more important than paying less interest over the term. This is especially true for those who are living paycheck to paycheck or are concerned about employment and income stability. In these cases, having extra money in their pockets at the end of the month can make a big difference.
In addition, having a lower monthly mortgage payment can provide more financial flexibility and enable individuals to invest in other areas, such as stocks or real estate. This is particularly advantageous in times when mortgage rates are low.
For those considering purchasing rental property in the future, a lower mortgage payment on their primary residence can make it easier to qualify for a larger mortgage for the investment property. This is because only 50% of projected rental income can be used towards qualification, which can make the process more challenging for many.
Let’s look at an example to compare the costs of a 25-year amortization versus a 30-year amortization. If someone needs a $500,000 mortgage, they have the option of a 25-year amortization at 1.79% or a 30-year amortization at 2.04%. Here’s how the numbers compare:
With a 25-year amortization at 1.79%, the monthly payment would be $2,066.93, and the interest over 5 years would be $40,999.48.
With a 30-year amortization at 2.04%, the monthly payment would be lower at $1,910.13, and the interest over 5 years would be $49,519.51. However, the lower monthly payment could make it easier to invest in other areas or build cash reserves.
Of course, it’s important to consider the individual circumstances and priorities of each person when choosing an amortization period. Some may prioritize paying less interest over the term, while others may prioritize a lower monthly payment.
In addition, it’s important to note that a lower mortgage rate is not always the best option. While it can result in lower monthly payments, it may come with restrictions or penalties that can make it more expensive in the long run. It’s important to work with a trusted mortgage professional who can help assess the individual needs and circumstances of each borrower.
Don’t miss out on the numerous benefits of 30-year amortization! Are you ready to learn more? It’s time to speak with a mortgage broker. Whether you’re a first-time homebuyer or looking to refinance your current mortgage, a broker can provide personalized guidance on the advantages of a 30-year amortization. Enjoy lower monthly payments, greater financial flexibility, and a longer period to build equity. Don’t wait to unlock the benefits of this option. Contact a mortgage broker today and discover how 30-year amortization can work for you!