A Home Mortgage is usually borrowed for how long?

a home mortgage borrowed for long


On average, a home mortgage is usually borrowed as long as from 15 – 30 years. You can find terms that run from 3 to 30 years, with either a fixed or floating interest rate. It largely depends on your agreement with the lending banks, mortgage institution, or relevant financial institution. Read about how to buy a home in Illinois, California, and Texas in our previous articles.

Before you decide on the term of your mortgage, do well to consider how long you intend to stay, your finances, your employment, among others. The rule of thumb is that the longer the terms of years, the smaller your monthly payments, but then, the larger the total amount of interest you pay over the life of the loan.

Home Mortgage Definition:

A home mortgage is a loan provided by a mortgage lender or a bank or other financial institution to enable an individual purchase or maintain a home or property or other real estate. The property itself serves as collateral for the loan.

This is how home mortgage works: The mortgage house provides the loan which the homeowner needs to purchase a new home. The lender retains the title to the property, until the borrower pays up the loan. If the borrower is unable to make the payments, the lender can evict the residents, foreclose on the home, sells the home in the open market, takes the loan money and refunds the balance to the borrower.

The essence of a mortgage is thus: Often, the price of buying a home is far greater than the amount of money most households save. Mortgages allow individuals and families to purchase a home by putting down only a small fraction of the purchase price, usually a relatively small down payment, such as 20% of the purchase price, and obtaining a loan for the balance. The value of the property serves as security for the loan in case the borrower defaults.

Mortgage payments happens on a monthly basis and consist of four main parts:

1. Principal

The principal is the total amount given in the loan transaction. It often represents the purchase price of the property. Normally, the expectation is that you make a 20% down payment on the purchase of a home.

2. Interest

The interest is the monthly percentage charged to each mortgage payment by the lender. Lenders and banks are in the mortgage business because of the interest they obtain from the mortgage transaction. Interest is the money a lender or bank earns or charges on the money they loaned to homebuyers. The interest money is often amortized, that is, the lender breaks down the interest over the duration of your loan into a monthly payment so as to ensure that you pay up every month.

3. Taxes

State laws requires that the mortgagee, that is the person who gets the mortgage pay property tax the individual must pay as a homeowner. The rate of the taxes depends on the provisions of the relevant state laws.

4. Insurance

Mortgagors that is banks and financial institutions that grants the mortgage takes up insurance to cover damages to the mortgaged property as well as fittings that are part of it. The homeowner’s insurance is the name of this insurance. There is also specific mortgage insurance, which generally requires that an individual makes a down payment that is less than 20% of the home’s cost. That insurance design is to protect the lender or bank if the borrower defaults in paying the loan.

A home mortgage is usually borrowed for how long

In other words, what is the duration or term of a mortgage. Duration is one of the terms of a mortgage transaction. It is essential that settlement of a mortgage happens within a specific time frame. This is specified in the mortgage agreement as the term of the mortgage. A home mortgage is usually borrowed for a 15 to 30-year period. However, other people take out shorter terms.

According to the National Association of Realtors, most homeowners expect to live in the home for around 15 years.

Types of Mortgages

There are several types of mortgages. They include:

1.  Fixed-Rate Mortgages

This kind of mortgage has a fixed interest rate which you must pay for the entire duration of the loan.

2.  Variable-rate mortgage

Variable or adjustable mortgages have a fixed interest rate for a specific period. After that, the lender adjusts the interest rates based on prevailing market conditions.

3.  Interest-only mortgage

This is a unique mortgage where the terms allow you to pay the only interest rate for a specific period. This is usually between 5 to ten years. After that, you’ll have to pay back interest and principal.

Common Duration of Mortgages

When it comes to duration, the common mortgage terms are:

1.  30-Year fixed interest rate

The 30-year fixed mortgage interest rate is the most popular and fits most financial situations.

2.  Short Term Fixed Interest rate usually last from 3 to 20years. It’s ideal for homebuyers who are high-income earners to an extent.

3.  50-year fixed interest rate

With the 50-year amortization period, you can afford to pay a small amount as principal for the loan. You can spread the rest payment over the 50 years period.

Choosing the Right Mortgage Duration

Before signing a mortgage transaction, consider the following:

1. Your choice of location

Consider the location. Ask yourself if the nature of location and the climate suits your purpose and lifestyle. If you can endure, then you can afford to pick a long term mortgage.

 2.  How long do you plan to stay?

Paying a long-term mortgage is much easier as the monthly payments are smaller. It also gives you more time to pay. But you may be forced to reside or care for the home for a longer time than you may expect. A shorter duration mortgage saves you time to get done with the mortgage. But it often comes with higher monthly repayments.

If you’re buying a house where you’ll only be living for a few years, possibly less than 10, it’ll be unnecessary to get a 30-year mortgage. But if you intend to stay for as long as possible, and possible pass the house as an inheritance to your children, you can opt for a 30-year mortgage.

3.  Your Finances

Look at your financial plan before selecting the mortgage term you want. Defaulting on your payments comes with dire consequences such as foreclosure of your home. So you should only brook a mortgage transaction that you can afford.

4.  Your employment

Consider your employment condition. If it requires you to move from one location to another in short burst but pays higher returns, you may go for short term mortgage. But if you are sure of job security for as long as you can work, you can pick a 30 to 50 years mortgage. If you plan to retire in the next 20 years, then you might want to pick a 20-year mortgage that you can pay off before you retire.

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