Conventional housing loans are offered for 15 and 30 years. These often have you spending a lot more because of interest. You could be paying hundreds of thousands more for a 30 year mortgage vs a 15 year mortgage.
Your question now might be, how do I reduce the amount I pay in interest?
If you seek a very low interest rate and have a healthy income, you may qualify for a 5 year fixed mortgage. Is this option right for you? It can be, if you have one of these unique situations.
Not your first mortgage? If you’re looking interested in refinancing, you should check out these refinance mortgage rates comparison websites.
1. You have a hefty down payment.
If you are buying a modest home and have a hefty down payment, say at least 50 or 60% down, you may be able to find impressive 5 year fixed mortgage rates are worth the financial risk. However, before you take out this type of loan, make sure the payment is not so steep that you will have trouble paying every month. There is no point in taking out this type of loan if it is going to cause you financial hardship.
2. You plan to move in less than 5 years.
You can also choose a 5 year fixed rate adjustable rate mortgage (ARM). You can read about the differences between ARMs and Fixed Rates here.
In this case, you can lock in very low rates for 5 years, but then the rate will adjust. Be forewarned that depending on the economic climate in 5 years, your mortgage may readjust to a much higher interest rate, which can sky rocket your payments. If you plan to live in your home for less than 5 years and you give yourself ample time to sell before the 5 years is over, you may benefit from an ARM.
3. You want to retire early.
If you would like to retire in your 40s or 50s, retiring without a mortgage payment is best. A 5 year loan may help you make your retirement dreams a possibility. However, compare rates for a 5 year loan vs. a 15 year loan. If the difference in mortgage rates is not significant, you may be better off taking out a 15 year loan and paying extra rather than committing yourself to a 5 year loan.
Five year mortgage loans are not for everyone (or even most people), but if you fit one of these unique situations, it may be the best choice for you.
It can make total financial sense for you to take out a 5 year mortgage instead of longer term ones. However, be aware of the financial responsibility that comes with it. You have to put down a significant down payment and will likely have to be receiving a good enough income to cover the interest payments!