You will also need to pay taxes and insurance on top of this mortgage payment, so keep that in mind when figuring out how much house you can afford.

This sounds steep, but most people don’t stay in a 30-year loan for 30 years. They either pay it down quicker by making higher monthly payments (biweekly mortgage payments), or they may sell or refinance the loan.

Another common and simple to understand loan is the 15-year fixed loan. This works exactly like the 30-year loan except the same fixed payment is made in half the time, 180 months or 15 years. Obviously the payment will be much higher, but you will pay less interest and gain more home equity in a shorter amount of time. People who have an ample amount of income usually prefer this type of loan to reduce the overall cost of financing a mortgage.

The monthly payment is significantly higher, but the amount of total interest paid over the life of the loan is much less. Because you’re putting more money towards the equity of the home, you paying less interest each month, although the monthly payment is markedly higher than the 30 year fixed mortgage, the total interest paid during the 15 year loan is substantially lower. It may seem like the obvious choice, but it’s more complicated if you factor in tax deductions and the power of leverage. Not to mention if you can afford a monthly mortgage payment that high.

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