When deciding on a home loan, one of the most important considerations is what loan term should I get for a house? While a 30-year loan term is the most common, it’s not your only option, and the choice you make can have a big impact on your financial future. At 360 Mortgage Solutions, we guide clients through understanding how loan terms affect their repayments, interest costs, and long-term goals.
What Are Loan Terms?
A loan term is simply the length of time you have to repay your home loan. The standard term is 30 years, but you can choose a shorter term (e.g., 25 or 20 years) or even a longer one, such as 35 or 40 years, depending on your circumstances and goals.
Shorter Loan Terms: Shorter terms mean higher monthly repayments, but they significantly reduce the interest you’ll pay over the life of the loan. Plus, owning your home sooner can bring peace of mind and financial freedom.
Longer Loan Terms: Longer terms may have lower monthly repayments, making homeownership more accessible for some. However, they increase the total interest paid over the life of the loan.
Key Considerations When Choosing Your Loan Term
- Affordability: Ensure your repayments are manageable alongside your current lifestyle and future goals.
- Financial Goals: If saving on interest and paying off your loan sooner is a priority, consider a shorter term.
- Flexibility: Some clients choose a 30-year term but make additional repayments to pay off the loan faster, maintaining flexibility for unexpected expenses.
- Servicing Tightness: If your borrowing capacity is limited, a longer loan term might make repayments more achievable.
Real-Life Scenarios
- Refinancing: If you’ve already been paying off a loan for several years, it may not make sense to reset the term to 30 years. Instead, continuing with the remaining term can help you save on interest.
- First Home Buyers: Some clients start with a 30-year loan and plan to repay it within 25 years by making higher repayments. This strategy builds a buffer while reducing interest costs.
- Tax Planning: In some cases, financial advisors may recommend specific loan terms for tax purposes.
Why It’s Important to Tailor Your Loan Term
Every homeowner’s situation is unique. Your loan term should align with your long-term financial goals, including when you aim to be debt-free. That’s why we recommend consulting with a mortgage broker, financial planner, or accountant to determine the best approach for you.
Ready to explore your options and tailor a loan term to your needs? Book a free meeting with the 360 Mortgage Solutions team today!