Homebuyers

10-Year Mortgages and 20-Year Home Loans? Customize Your Mortgage to Fit Your Goals

When most people begin the mortgage process, they assume that 15- or 30-year loans are their only options.

Fortunately, some lenders offer more customizable mortgages that allow for more flexibility. In many cases, you can choose a loan with terms that range anywhere from 10 to 30 years. That means you could have a 12-year, 20-year, or even a 27-year mortgage.

These loans may help those buying their first homes as well as homeowners who are trading up into new properties or refinancing their existing loans.

“Customizable mortgages can be a great fit for a specific kind of buyer: someone who’s a bit older or hopes to be mortgage-free by a target age,” said Ashley Watters, real estate agent at eXp Realty in Little Rock, Ariz. They might also be right “for a business owner, freelancer, or salesperson who wants to structure their loan to fit their cash flow and goals.”

Before you move forward with a customizable mortgage, however, get familiar with the benefits and drawbacks. This way you can make the most informed decision for your unique situation. 

Advantages of shorter, customizable mortgages

Shorter loans typically cost homeowners less in interest. So, if you opt for an 11-year mortgage instead of a loan with a 15-year term, you may be able to save thousands of dollars.

A shorter loan may also come with a lower interest rate, which can reduce your borrowing costs even further. And they typically don’t require higher down payments than 30-year loans.

Additionally, a shorter loan means you’re able to build more home equity faster, giving you more cash flow to put toward savings, investing, and other financial priorities. 

Plus, you can pay off your loan earlier and be mortgage-free.

If you sell the home before you pay off the loan, the balance is paid off as part of the sale. And generally, there are no pre-payment penalties for paying off the loan early, although this may vary by lender. 

Watters pointed out that if you want to own your home free and clear by a certain milestone, such as when you retire or leave the military, a customized loan may be particularly useful. You can tailor your timeline to your loan term and don’t have to be tied down to a 15- or 30-year loan term.

Trade-offs to consider with customizable mortgages

As with any loan, shorter mortgages have some downsides that are important to understand before you commit to one. The most notable is the higher monthly payments.

Since you’re paying off the principal of the loan over a shorter period of time, you’ll have higher monthly payments.

This can put more pressure on your monthly budget. And it may not leave much left over for homeownership expenses, such as maintenance, emergencies, increases in insurance premiums, property taxes, and homeowner association (HOA) fees.

If you’re allocating more of your cash toward your mortgage, you’ll have less available for emergencies, savings, and other financial needs.

How to customize your mortgage

If you’re interested in a loan term that’s not for 15 or 30 years, you’ll need to find a lender that offers them. Then you can work with your loan officer to figure out the timeline and monthly payment that works for you.

Watters recommends getting quotes on both a standard-term and a custom-term mortgage side-by-side. 

“You can see the real payment and total interest difference and make sure your budget comfortably can handle the higher payment,” said Watters. “The whole appeal of a shorter term will evaporate if it strains your monthly cash flow.”