Should you choose a custom loan term for your next mortgage? While many home buyers and owners may only be aware of standard loan lengths — often 15, 20, or 30 years — you can actually customize your loan to reach your own unique goals.
How should you choose a custom loan term? Here are three strategies that any homeowner could apply to their situation.
Target a Life Event
Why do you want to pay off your mortgage loan earlier than the standard time frame? Do you want to pay it off before you retire, before you have kids, or before your kids finish high school? A major life event or change is a great target for loan payoff. It could be any event that means something to you, including a major wedding anniversary or your own plans to return to school.
When you target a life event, you automatically have something to celebrate when the mortgage is paid off. And it makes your goal tangible and easier to prioritize.
Choose a Balanced Payment
Of course, the shorter the loan term, the higher each month's payment. While everyone may want to pay off their loan as fast as possible, this isn't always practical. Even if you can pay higher payments now, future financial crises could put your ability to keep up with your payments in jeopardy.
Balance your interests, then compare the minimum required payments for different lengths of loan. You might end up paying for an extra couple of years, but you'll have more confidence in your overall plan no matter what comes. Remember that you can usually pay off the loan early through additional principal payments during good financial times.
Coordinate With Other Payments
Your mortgage loan isn't the only financial obligation or goal you have. So why not consider it as just one part of an overall plan to pay off debts or reach other financial targets?
For instance, you might arrange to pay higher mortgage payments on an 11-year loan that ends when you reach 50. Then, pour that extra money into your retirement accounts. Or a debtor might opt for a mortgage term that coincides with the projected date to pay off their other debts. When coordinated with other plans, the mortgage becomes a tool to better your financial situation.
Which of these strategies could help you boost your finances and own your home outright as soon as feasible? No matter what method you choose, the extra effort will be worth it when you end that mortgage on your own schedule and start your next financial chapter.
For more information about custom loan programs, contact a local lender.Share