December 23, 2010
No two FHA mortgages are the same. House hunters have a variety of terms, interest rates, closing costs and other considerations to think about when applying for an FHA mortgage loan on a particular property; one of the most important decisions is the length of the loan itself.
FHA home loans for typical residential neighborhood homes come in 15-year and 30-year terms. There are a variety of compelling reasons to choose both–there is no strong argument for or against either term. It all comes down to what the individual buyer needs and wants from their mortgage.
The buyer’s perspective determines a great deal when it comes to deciding which to choose. A 30-year loan has buyer paying off more interest than principal in the early days of the FHA mortgage. That may sound like a disadvantage on one hand–a great deal of the buyer’s hard-earned money is not going to pay off the loan itself. But the advantages include potentially higher tax deductions.
A 15-year loan may have higher monthly mortgage payments, but more of that money goes toward paying down the principal of the FHA loan, and the loans often feature lower interest rates than their 30-year counterparts. Because the principal is paid down sooner, home equity is built up faster than on a 30-year loan. The trade off for the higher equity is the higher monthly FHA loan payments.
In both cases, FHA borrowers have the option to pay more than the required monthly mortgage payments.But it’s very important to check the terms of your FHA home loan first; have you signed a contract that features a pre-payment or early payment penalty? You may actually be charged a fee to pay off the loan early–know before you pay.
15-year loans and 30-year FHA mortgages have their own unique advantages and disadvantages; only the buyer knows for certain which terms best suit their needs, but when in doubt, ask for some additional help from the loan officer or FHA loan center to find out which is the best option in your circumstances.
Joe Wallace has been specializing in military and personal finance topics since 1995. His work has appeared on Air Force Television News, The Pentagon Channel, ABC and a variety of print and online publications. He is a 13-year Air Force veteran and a member of the Air Force Public Affairs Alumni Association. He was Managing editor for www.valoans.com for (8) years and is currently the Associate Editor for FHANewsblog.com.
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