Loan term
Updated
What is loan term?
The loan term is the number of years over which the mortgage is scheduled to be repaid, most commonly 30 or 15 years in the US.
Loan term questions
- What is a loan term?
- The number of years the loan is scheduled to take to reach zero. A 30-year term means the payment is calculated so the balance clears in 360 monthly payments.
- What loan terms can you get?
- Thirty and fifteen years are the common fixed terms, with twenty and ten widely offered and some lenders writing any whole number of years in between. A shorter term carries a higher payment and a lower rate; a longer one does the reverse.
- Does a longer loan term cost more?
- Almost always. A longer term lowers the monthly payment because the balance is spread over more months, but you pay interest for those extra months, which is why refinancing into a fresh 30-year term can raise total cost even at a lower rate.
What it means in practice
A longer term lowers the monthly payment and raises total interest. A shorter term does the reverse and usually earns a lower rate.
The term matters most on a refinance, where resetting to a fresh 30 years can raise lifetime interest even though the rate fell.
Matching the new term to the years you have left avoids that reset, at the cost of a smaller payment reduction.