NEWS: Alternatives to the 30-Year Mortgage

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Looking for a home loan but without lengthy terms? There are plenty of rewarding alternatives out there for you and your family.

The traditional, 30-year mortgage has always been a popular choice among prospective homeowners. Even now, it accounts to almost 90% of the home financing market. It is an option that looks to the future, offering security in the long-term. However, more and more are now veering away from such a commitment, attracted by the lower monthly payments but hesitant to be tied down to such a drawn-out repayment scheme.

It could be that you are experiencing a similar feeling of hesitancy, or would simply like to explore other avenues before committing. It is, then, important to read up on what alternatives are out there for you and your family. So, aside from paying for the property in cash, which is a surprisingly popular option these days – though, typically made by investors looking to take advantage of low property prices – what other choices do you have when looking at the right home loan for you?

A 15-year fixed-rate mortgage would be the first decent alternative to mention. The loan duration is obviously half that of a traditional, 30-year mortgage, meaning that you would both build your equity faster and pay off your house faster. Interest rates are generally 1% to 1.5% lower than that of a 30-year loan, saving you money. The drawback being that monthly payments are much higher in comparison.

If they are too high, you could always look at a 20-year fixed-rate mortgage. This is designed for those who cannot afford the monthly payments of a shorter loan, but can afford to pay more than that of a longer loan. Lenders also offer the option to customize your loan and pick the exact amount of years you wish for the loan to last.

How about an interest-only mortgage? You pay off none of the price of the money you borrowed, but gamble on the idea that you can achieve capital growth via your own investments, or that you sell the property, pay off the outstanding property price, and pocket the difference. The advantages are that payments are much lower than a traditional mortgage, and this allows you to invest the money you save.

This gives you a lot more flexibility. Drawbacks are that this can go badly wrong: you are obliged to pay the mortgage provider the full amount you borrowed, but there’s no guarantee that your investment will make enough money to pay the remaining balance at the end of the term – even if you end up selling the property; the other thing is you need to be really disciplined to make this work – if you’re not great with money, don’t attempt this.

Finally, you could always pick adjustable-rate mortgage. This money could see you save money initially, but means that you are vulnerable to rising interest rates.

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