Alternatives to a 30-Year Mortgage


A 30-year mortgage is a favored product for many homebuyers. And since these mortgages offer comfortable, affordable mortgage payments, many lenders recommend this type of loan. But you shouldn’t select a 30-year mortgage simply because a lender dangles it in your face.

It’s crucial to have an in-depth dialogue with your loan officer and familiarize yourself with various products. After a little research, you may come to the realization that another mortgage program is a better fit for your situation.

Here are three possible alternatives to a 30-year mortgage.

1. Three, Five or Seven-year ARM

A 30-year fixed-rate mortgage might be appropriate if you’ll live in the house long-term, and if you’re looking for a reasonable monthly payment and an interest rate that doesn’t change. But if you know you’ll sell the house within three, five or seven years, talk with your lender to see if you’re a candidate for an adjustable-rate mortgage.

ARMs aren’t the right fit for everyone. A hallmark feature of these mortgages is the temporary fixed rate followed by periodic rate adjustments. Many fear and keep away from adjustable-rate mortgages because of their unpredictable nature. But if you rarely live in one place for too long, or if you relocate often for work, an adjustable-rate mortgage can make sense. These mortgages have cheaper interest rates than fixed-rate mortgages. With that being the case, you can live in the house for a few years, benefit from a low mortgage payment, and then sell the house before your rate adjustments begin.

2. 15-Year Mortgage

A 15-year mortgage results in a higher mortgage payment, so this loan isn’t right for everyone. But if you can afford a higher payment, and you like the idea of paying off your home sooner and building equity faster, ask your mortgage officer to crunch the numbers and learn whether you can fit a 15-year (or even a 20-year) mortgage into your budget.

A 15-year mortgage might be ideal if you’re retiring in the next 10 to 15 years and you don’t want to drag a mortgage payment into retirement.

3. 40-Year Mortgage

These mortgages aren’t as common as they were in the mid-2000s, but they are making a comeback. Not every lender offers this mortgage. However, if you find a lender willing to give borrowers 40-year financing, one benefit of these loans is that you can get into an affordable  house sooner. But since you’re extending your mortgage 10 years beyond what’s considered a normal term, you’ll also build equity much slower. If home values fall before you can significantly pay down the balance, it might be difficult to sell the property.

While a 40-year mortgage can be the key to a more affordable payment, you should make every effort to pay off the house sooner, which can help you build equity and reduce your interest charges. For example, gradually increase your mortgage payment as your income allows.