Loan Term
Definition and meaning of Loan Term in real estate.
A loan term is the contractually specified period of time during which a borrower must repay a mortgage loan.
In more detail
The length of the term directly impacts the size of the monthly mortgage payment and the total amount of interest paid over the life of the loan. Shorter terms, such as fifteen years, feature higher monthly payments but lower interest rates and less total interest expense.
Longer terms, such as thirty years, offer lower, more affordable monthly payments but result in more interest paid over time. If a loan is structured as a balloon mortgage, the payments may be based on a longer amortization schedule, but the entire remaining balance becomes due at the end of a shorter loan term.
Key facts
| Category | Mortgages & Financing |
|---|---|
| Most common terms | Fifteen and thirty years |
| Impact of shorter term | Higher monthly payments, lower interest costs |
| Impact of longer term | Lower monthly payments, higher interest costs |
A home buyer chooses a shorter fifteen-year loan term instead of a typical thirty-year term to pay off their mortgage faster and save money on long-term interest.
Frequently asked questions
Can I change my loan term after the mortgage is finalized?
The only way to change your loan term is by refinancing your mortgage into a new loan with a different term duration.
Is a fifteen-year mortgage better than a thirty-year mortgage?
A fifteen-year mortgage saves money on interest and builds equity faster, but a thirty-year mortgage offers lower monthly payments and more financial flexibility.