Federal Home Loan Mortgage : Choose Your Term

Are you ready to take the plunge into homeownership? If so, it's time to start thinking about which mortgage option is best for you.

You'll want to start by working closely with your lender to explore which loan options align with your homeownership and financial goals. With many different mortgage products available, there is no 'one size fits all'. Many borrowers don't realize that shopping around for the best product, term and rate could potentially save them thousands of dollars over the life of the loan.

The Fixed-Rate Mortgage

Let's consider today's most commonly selected loan- the fixed-rate mortgage. A fixed-rate mortgage locks your interest rate in for the life of the loan. Think 'fixed'. The primary benefit of an fixed-rate mortgage is inflation protection, meaning that if mortgage rates increase in the future, your mortgage rate will not change.

And while mortgage rates are often top of mind when shopping for mortgage, another important factor to consider when is the length, or term, of the loan. Let's compare two of the most popular fixed-rate mortgage options- the 15-year and 30-year- to see how the term may impact your loan.

30-Year Term

The 30-year fixed-rate mortgage is the product of choice for nearly 90% of today's homeowners.

A longer mortgage term (30 years) provides affordability, stability and flexibility and is generally characterized by:

• A lower monthly payment
• A higher interest rate compared to shorter term loans
• More total interest paid over the life of the loan

15-Year Term

With a 15-year fixed-rate mortgage you're paying back the loan in half the time of the 30-year fixed-rate mortgage, so your monthly payments will be higher. The advantage of the 15-year term is that you can build equity much faster than with a 30-year mortgage and your total costs over time will be lower. Generally, a shorter mortgage term is characterized by:

• A higher monthly payment
• A lower interest rate
• Less total interest paid over the life of the loan

Again, 30- and 15-year terms are the most popular, but they're not the only mortgage options. No matter what term you choose, whether it's 10-, 15-, 20- or 30-years, a fixed-rate mortgage guarantees that your monthly mortgage payment will remain the same for the entire term of the loan. Although, it's important to note that your taxes and insurance can change over time.

In addition to talking with your lender, consider discussing your mortgage options with a HUD-certified housing counselor. You can use our fixed-rate mortgage calculator to estimate your total monthly payment adjusting for term and interest rate.

For more information on buying a home, be sure to visit My Home by Freddie Mac^®.

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