To answer this question, we must look back in time to the 1920s.
In that era, the typical home buyer put down 50% of the purchase price, then financed the rest of it through a five-year balloon loan. If, at the end of that five years, there was still a loan balance, the homeowner refinanced the loan.
A major challenge existed with that system: Buyers who weren’t able to come up with the 50% down payment were unable to purchase a home.
With the onset of the Great Depression, and through the 1930s, the Roosevelt administration helped set up the system of mortgages as we know them today. At that time, it was decided that a 30-year term for a mortgage was long enough to keep the payments low and short enough for someone buying their first home at a young age to have it paid off before they retired.
Fast-forward to 2018: Things are different in today’s market.
People tend to move more often than they did years ago. The 30-year mortgage is still by far the most popular term for a mortgage, but other choices may be better, given your circumstances.
Mortgages with shorter terms, such as those of 15 or 20 years, incur lower interest charges over the life of the loan. Of course, the payments are higher, but when you shop for a mortgage, you may want to consider looking into these options.
Your mortgage professional can help you explore your choices and determine which is best for your situation.