The most common type of mortgage loans today are fully amortizing loans, which involve regular monthly payments that will eventually pay the loan in full over a specified amount of time.
Thirty-year terms are the most widespread, although some longer terms are now allowed, such as forty and fifty-year mortgages.
Many people think that shorter loan terms are better, as they will save the borrower several thousands of dollars in interest over the life of the loan.
Over the course of thirty years, a $100,000 mortgage at 6% interest will result in $115,838 in interest, with payments of $599.55 per month. For the recommended twenty-year term, total interest drops to $71,943.20 but payments increase to $716.43 per month.
However, most Americans keep their homes less than ten years.
This means that as a practical matter, the property is sold and the loan is paid off long before the completion of the term, so people can actually save money by not taking out a loan with a shorter term but higher monthly payments.