Transcript: Short-term loans versus long-term loans
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A mortgage loan has three key variables: Loan amount, the size of the loan, or how much you borrow; loan term, the amount of time you have to pay off your mortgage balance; and interest rate, the percentage of the loan amount paid to the lender to borrow the money over the life of the loan. Your credit history will also influence these variables.
Whether you are better off choosing a longer or shorter-term mortgage depends on a number of factors, including your monthly income and your budget for your monthly mortgage payment.
Shorter loan terms typically mean higher monthly mortgage payments, but often have lower interest rates.
And if you pay off your mortgage balance within a shorter term, you may pay less in interest overall than with a longer-term mortgage.
A longer-term loan has lower monthly payments, which may be a good option if you're on a tight budget or would prefer to direct your monthly cash flow toward other expenses. But keep in mind that a longer loan term means greater total interest costs.
It is important to look at not only the monthly amount you will pay but the overall amount, as well.