7.4. Choose the Term of Your Mortgage

Although it may feel like you'll be paying back your mortgage forever, the loan does have a definite lifetime, its term. Lenders use a loan's term to amortize the mortgage (Section 7.1.3), figuring out how much you need to pay each month in order to repay the loan, plus interest, over that term. In general, the longer the term, the lower your monthly payments. However, a longer term means that you're borrowing the lender's money for a longer period of time—and that means you end up paying more interest.

7.4.1. Shorter Term or Longer Term?

Mortgages commonly come in terms of 15, 20, 30, 40, 45, and even 50 years. Fifteen- and 30-year terms are among the most popular, although in markets where homes are more expensive than the national average, up to a quarter of loans may have terms of 40 years or longer, thanks to the way these loans lower borrowers' monthly principal and interest payments.