A home mortgage can follow a borrower from college to retirement.
A mortgage can last anywhere from 10 to 50 years, depending upon the term of the loan. Many mortgages last longer than the lifespan of the homeowner, while some homeowners see the day that their mortgage is paid in full. The lifespan of a mortgage starts with the mortgage application prior to the purchase of the residence and ends with free and clear equity in the home.
Significance
The longer the term of the mortgage, the more interest the borrower pays. Additionally, the higher the interest rate, the more interest is paid as well. A borrower can reduce the term of a mortgage by making additional principal payments. For instance, on a 30-year fixed rate mortgage, if a borrower makes one additional payment per year, every year, the term of the loan is reduced by seven years.
Function
The application process allows you to become preapproved for a mortgage. Once a contract has been procured to purchase a home, you may close on this mortgage, at which point you are officially liable for the debt. Each month, according to the terms of the mortgage, you, as the borrower, pay a set amount to reduce the principal of the mortgage and repay the debt. You continue making payments until the mortgage is paid in full. At that time, you own the house, free and clear from the mortgage debt.
Time Frame
The length of the mortgage debt can range from 10 to 50 years. Most often, borrowers purchase a 30-year mortgage. However, if you refinance the debt, you could lengthen the overall length of time in which you have a mortgage on your residence. For example, if you purchase the house with a 30-year fixed mortgage and in seven years refinance into a new 30-year fixed mortgage, you will have a mortgage debt on the residence for 37 years, albeit through two different mortgages.
Considerations
The Truth in Lending Statement given to the borrower at the closing of your mortgage outlines the payment schedule for the life of the loan. It also outlines the payment amount, the APR (annual percentage rate) and the total of all interest and payments paid over the life of the debt. The APR is the numerical representation of the total cost of the mortgage debt for one full year, including both the closing costs and the monthly interest rate. The only way to reduce the total interest paid on the mortgage is to make additional payments throughout the life of the debt.
Misconceptions
Many borrowers assume that because there is a set monthly payment that they are not able to prepay their debt. However, this is not the case, unless there is a prepayment penalty specifically written into your mortgage contract. Prior to paying any additional payments on your mortgage, you should call your mortgage servicer and ensure that there is not a prepayment penalty, which could result in additional fees if you repay any part of the balance early.
Tags: mortgage debt, your mortgage, 30-year fixed, 30-year fixed mortgage, additional payments