Long term loans can be a scary concept. Who wants to be in debt the same amount of years as a life sentence? It’s not as bad as you might first set out to believe. But, it also depends on your financial situation and your personal life. On one hand, a long term loan will trap a homeowner into a financial situation that just isn’t suitable for their life. On the other hand, it might actually save you financially.
Before you decide whether taking a mortgage is for you or not, evaluate the following pros and cons of long term fixed mortgage rates.
Pros
Here are some reasons you might want to look into getting a long term loan:
Planning Ahead
Having a long term, fixed mortgage rate ensures that you will know exactly how much you will need to pay at the end of every single month, and know when you will be done paying it off. This allows you to plan and budget for the future much easier.
Affordability
By spreading the course of your payments over a long period of time, like 20 years, you are more likely to be able to afford the payments, making this enormous purchase more of a breeze.
Refinancing is an Option
Luckily, there are certain scenarios and opportunities that can arise that will make it so that you can refinance to a lower interest rate. Looking into that will be of use as well.
It Is FIXED
Let’s say interest rates are on the rise. This is going to be a bummer for everyone else, but not so much for you. You will be paying an interest rate lower than what is available on the market. So there will be no cause for alarm.
Tax Breaks
You can actually write off your mortgage interest as a tax break.
Paying Early Pays Off
If you are able to pay off your loan earlier than expected then your overall interest will decrease. So, if you happen to make a lot of money in the future, you can, in turn, save a lot of money in expenses as well. It’s a win-win.
Cons
Okay, so we have looked at some of the reasons you might want to get a long term fixed loan. Now, as every yin has its yang, let’s look at some reasons as to why you might not want to get yourself involved with this mortgage option.
Refinancing Costs
Unfortunately, refinancing does come with a price. Plus, each time you refinance you are also resetting the term of your loan.
Longer Terms Mean More Interest
While you are paying smaller amounts each month you are also going to be paying more interest in the end. The longer it takes to pay off a loan, the more interest you accumulate. That’s a sad fact of life.
You Have to Stay
The majority of your interest costs are paid off in the first half of your loan term. In fact, about 30 percent of your interest is paid in the first 5 years of living in that home. So, if you might move before then, you risk losing money.
Takeaway
Long term loans have their pros and cons as we can see above. So does any loan you apply for. But, if you do your research, have a solid plan for your future, and take do some comparing, hopefully, you will make the right decision that fits your needs.