The term of the loan is the number of years you have the loan.

Most loans require you to pay the loan off over the length of the loan.

Some loans allow you to pay a lower amount, such as an interest only payment, for an initial period but then switch over to a regular loan for the remainder of the loan.

Loans that do not the principal down are often balloon payment loans where the principal becomes due at the end of the loan’s term.

A shorter loan term will result in a higher monthly payment but less payments over the life of the loan than a similar loan amount with a longer term. A 15 year loan for $400,000 at 5.5% interest will have a monthly payment of $3,268 while the same $400,000 loan at 5.5% interest with a 50 year term will have a monthly payment of $1,959.

As you can see the payment difference between both options is over $1,000 per month. This is even though both loans have the same rate and are the same size.

Many mortgage lenders offer loans with terms of:

  • 15 years
  • 20 years
  • 30 years
  • 40 years
  • 45 years
  • 50 years

You can compare the same loan and interest rate with different terms to see which payment size you are comfortable with.

There are many free mortgage calculators available online to help you.

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