15-, 20- or 30-Year?

When you're looking for a mortgage, you need to decide which loan term you want and how the interest rate may be impacted.

The loan term is the length of time you have to pay back the loan. The longer the term, the lower the monthly mortgage payment. The shorter the term, the higher the monthly mortgage payment.

Most mortgage lenders offer at least two basic terms: 15 and 30 years, and many also offer 20-year fixed-rate mortgages.

• 15-Year Term
  This term has higher monthly payments because the loan is shorter. The interest rate is usually lower, and you can build equity faster. You pay off your loan much faster, and ultimately, you pay far less interest than over the course of a 30-year loan.

• 20-Year Term
  This fixed-rate mortgage builds equity more quickly than with a traditional 30-year mortgage, and also saves you interest over the life of your loan.

• 30-Year Term
  Interest rates may be somewhat higher for this term and you pay more interest over time, however your monthly payment will be lower.

What type of loan term should you choose?

If you can make higher payments and want to build equity faster, a 15-year term may work for you.

If you want to qualify for a larger loan amount, longer terms may be a good choice - especially if you don't plan to move, and the interest rates are reasonable when you sign the loan. This is generally the easiest loan term to qualify for. You can always make larger monthly payments, and ask your lender to re-amortize your loan to pay off your loan faster.

You should look at your finances and your long-term plans, such as starting a family or paying for college tuition, when deciding which term works best for you. You want to choose the loan terms that allow you to comfortably afford your monthly mortgage payment while building equity in your home.