First Time Buyers are wondering what term to pick on their mortgage. The challenge these days is choosing between short term (6 month) mortgages at 5.5% or long term (5 year) mortgages at 7.5% The term of the mortgage is the period of time over which the rate and payment on the loan are guaranteed. Should you choose 6 months or 5 years depends on circumstances. If your decision is based solely on the belief that rates are going to remain low, that is your prerogative. Most Consumers however pick the shorter term simply because the payments are lower. In other words, payments on a $100,00 mortgage amortized over 25 years are $120. per month cheaper on the 6 month term than on the five year term.

The danger in choosing the lower payment is that if rates go up, you may elect to continue your short term philosophy driven by your inability to make higher payment than those you have been making. By the time you can afford the jump in payments, the long term rate may have climbed to a level that you cannot afford. Your decision today may dictate your level of comfort for the foreseeable future, so you must chose carefully.

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Let me give you a tip that will eliminate the need to second guess the economy, all-the-while giving you the rate edge you were looking for in the first place. Go ahead and choose the lower rate if you must (this writer would choose long term rather than take the gamble) but ask your lender to give you the payment of the higher rate. In other words, if you know that the monthly payments on a $100,000 mortgage at 7.5% are $731.55, ask your lender to match those payments at the lower rate (5.5%). The lender would then give you your mortgage at 5.5% amortized over 18 years rather than 25 years.

Being used to the higher payment, if rates go up, you can afford to switch to a longer term (higher rate) mortgage without necessarily raising your payments. This is a much better idea while playing the rate game.