A traditional fixed-rate mortgage is a classic, solid choice for a home loan. Typically, these types of mortgages come in a few flavors, with the 15-year term and the 30-year term being the most popular. However, what you might not realize is that you actually have some flexibility when selecting the term, or length, of your fixed-rate mortgage.
If you’re looking for a wider range of choices to fit your specific needs (and maybe save you some money in the long run), a YOURgage might be just what you need.
What Is a YOURgage?
A YOURgage is a conventional loan option from Quicken Loans that provides a bit of customizability when it comes to picking your term, allowing you to pay off your loan in the time frame you’re comfortable with. With a YOURgage, you have the power to pick any term from 8 to 29 years, so you can choose one that best suits your needs and budget.
Remember that a mortgage “term” refers to how long you’ll make payments on a loan before it’s paid off, provided you don’t make any additional payments.
To see why a custom term might make sense for you, you first need to understand why a person would choose a shorter term, like a 15-year, over a longer term, like a 30-year.
What Difference Does the Term Make?
With a shorter-term mortgage, such as a 15-year fixed, one of the main advantages is that you’ll be able to get a lower rate than you would with a longer term, such as a 30-year fixed. Additionally, while your monthly payments on the 15-year are higher, you’ll pay less over the life of the loan than you would with a 30-year. Why? Because you’ll spend less time accruing interest on the loan. With a longer-term mortgage, such as a 30-year, you’ll have lower monthly payments, but you’ll end up paying more in interest.
For example: Say you take out a loan for $200,000. If you took the 15-year fixed-rate option, with a 3.99% interest rate (4.478 APR), your monthly payment would be around $1,478.37 (not including taxes and insurance). If you pay according to schedule and don’t overpay for the full 15 years, then by the time you’ve paid off your mortgage, you’ll have paid $66,107.27 in interest, in addition to the original $200,000 you borrowed. Contrast this with a 30-year fixed-rate mortgage, with a 4.56% interest rate (4.835% APR). While your monthly payment would be lower – around $1,020.51, not including taxes insurance – you’ll end up paying an additional $167,384.77 in interest over 30 years.
To get an idea of what you’d pay with different terms and rates, check out our amortization calculator.
As a borrower, you need to decide what makes the most sense and is feasible for your budget. While paying less interest over the long term can be a more attractive option, paying a higher monthly payment might not be realistic for many budgets. It’s important to make sure you have a monthly payment that you’re comfortable with.
When Does a YOURgage Make Sense?
With a YOURgage, you can tailor your loan to fit your needs and find a happy medium where you have a manageable monthly payment and potentially save some money on interest, all while enjoying the benefits that a fixed-rate mortgage provides.
In addition, because a YOURgage is a conventional loan, you can get into a home with a down payment as low as 3%, making it a great option for first-time home buyers.
A YOURgage can make sense if traditional loan terms don’t fit your particular situation, or if you’re looking to refinance.
When you refinance to a YOURgage, you’re able to keep the number of years you have on your mortgage, even if you’re refinancing to a lower rate. For example, if you have 18 years to pay off your mortgage, you can refinance to an 18-year YOURgage, instead of switching to a 30-year fixed and adding 12 years of payments to your principal.
Still not sure if a YOURgage is right for you? Chat with one of our Home Loan Experts at (800) 785-4788 to go over your options. Ready to get started? Head over to Rocket Mortgage to get your custom rate.
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