Should people choose short or long term amortizations when selecting a mortgage loan?
Decide how long you will need the money for and match the fixed period of the loan to that time. For instance, if you plan on moving in 3 years get a 3/1 Arm. If you know you will do a major addition in 5 years and need to pull out equity to fund the addition, get a 5 year arm. If, and only if, you plan on being in the home for a very long time and have no plans to utilize your home equity, then go for the 30 year fixed. If you opt for the 30 year fixed know you will be paying more in interest and less towards principal than with an ARM. The average mortgage is paid off in 4.3 years because people refinance or move so the fixed rate rarely makes the most financial sense. With that being said, having a 30 year fixed gives some people piece of mind. It’s like having an insurance policy you will most likely never need but it can be nice to have in case the unexpected happens and you’re in the home for 30 years.
