Final answer:
If you have a 20% down payment and are not a veteran, the recommended mortgage would allow you to avoid mortgage insurance and potentially save on the total interest paid over time. You must choose between a 15 and a 30-year term, where a 15-year mortgage means higher monthly payments but less interest overall, while a 30-year mortgage offers lower monthly payments but more interest over time.
Step-by-step explanation:
If you're not a veteran and have 20% cash to use as a down payment, the recommended mortgage typically means that you can avoid mortgage insurance which is an extra fee that protects the lender. The 20% down payment acts as a good faith payment showing the lender that you are financially invested and reduces the lender's risk if you default on the loan. However, if saving a full 20% is challenging, there are low down payment options available that generally require the purchase of mortgage insurance.
When considering a mortgage, you also have the choice between the terms of the loan, with the most common being 15 or 30 years. While a 15-year mortgage will generally have a higher monthly payment, you will pay less in interest over the life of the loan. Conversely, a 30-year mortgage will have lower monthly payments, but the total interest paid over time will be higher. It's important to consider both the short-term affordability and long-term costs when choosing the term length of your mortgage.
Let's take Ben's scenario as an example. Ben bought a house for $100,000, put down 20%, and borrowed the rest. His property value increased to $160,000, and he has already paid back $20,000 of the loan. This increases his equity and could potentially reduce his interest payments if he refinanced his mortgage.