Today, when you borrow a home mortgage loan, there is flexibility in the amortization periods that are available. Some banks have even created customized strategies.
Some banks let you repay on a longer term than 25, say, 30 and even 35 years.
But don’t forget, longer is the term of your home mortgage, higher is the interest you will pay to the bank… And financial institutions that take customers for very long period specialize on customers that usually have a bad credit history. For this reason, we prefer to talk about more secure and serious term, with a maximum of 30 or 35 years for repayment.
Is that a good idea to take a long home mortgage loan repayment term?
Of course, a longer amortization period for your mortgage facilitates people access house buying because it reduces their monthly payments.
This choice could help people to get a home at affordable prices, but if you take risks as a lot of people done before the 2008 subprime crisis, your financial situation could get worst!
The best choice is to repay your home as fast as possible (in 15 or 20 years). But in some cases, it could be a great idea to choose a longer repayment term. Here are several good situations where it could be useful:
1. Yourself or your spouse is studying and soon complete his/her program, which leaves to a job and higher income.
2. You are employee and your income is based on years of experience, which means you will have more money to repay in few years.
3. You plan to get significant increases in your future income, as if you develop a business or are self-employed.
Benefits of long term home mortgage loan
It could be very expensive to repay on a long term (30 years or more). But it can also lead you to some benefits…
High requirements of banks if you are a “risky” customer. If you debt ratio is too high or you credit history not so good, a long repayment term can be the solution.
More flexible repayments of your home mortgage loan. If your income varies each year (seasonal worker or self-employed, for example) and you want to reduce your monthly payments as low as possible, this could also be a good solution.
