August 28, 2020

Couple looking at ipad with mortgage officer

When you seek a mortgage loan in Hampden County, you will be offered a choice in the length of the loan you want. Your mortgage could take the form of the standard long-term loan duration of 30 years, or a more short-term arrangement with a duration closer to 15 or 20 years. The duration of your home loan has a very real and tangible effect on the required payments, so it's important to understand those effects before deciding which option is best for you.

Long-Term Mortgage Loans

All loans operate on the same basic repayment principles. The full amount of the loan is divided into payments across the duration of the loan, and interest builds up over time. With a long-term loan, there are more payment periods for the amount to be divided across. Consequently, the amount that needs to be repaid each month will be lower. However, more payment periods means more opportunities for interest to accumulate. This means that, while the amount you pay each month will be lower, the total amount will end up being higher.

Short-Term Mortgage Loans

With a short-term mortgage loan, everything described above is reversed. Fewer payment periods means the amount you need to repay each month is higher, but interest will be lower. This results in larger monthly payments but a lower overall amount being spent. The additional benefit is that short-term loans let you build equity—the difference between a home's value and your debt on it—at a faster rate, which can influence other financial opportunities down the line.

Which Type to Choose?

The decision of whether a short- or long-term mortgage is best will largely depend on your personal financial situation. Do you feel that your budget can support a higher monthly payment, or would you prefer the lower payment and have more freed income? Keep in mind how long you plan on staying in the home as well. If you plan on moving or retiring within the next 15 years, for instance, you may want to work on clearing your mortgage ahead of time and would prefer a shorter term.

You should also take some time to look at the actual calculations behind what your payments would be under different sets of terms. Due to the way interest and the repayment formulas work, turning a 30-year term into a 15-year plan does not actually double your monthly payments, for instance.

Look to LUSO Federal Credit Union for Home Mortgage Options

LUSO Federal Credit Union is a not-for-profit, member-owned financial cooperative dedicated to providing members with quality financial services and products. We at LUSO pride ourselves on serving the financial needs of our members and provide home mortgage options at a number of different terms in Ludlow, Springfield, Chicopee, Wilbraham, and Hampden County, Massachusetts.

Feel free to contact our Ludlow or Wilbraham branch toll free at 1-844-LUSO-FCU.


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