What is the Average Length of a House Loan?

When buying a home, one of the biggest financial decisions you’ll make is choosing the length of your mortgage loan. While 30-year loans are the most popular, the average homeowner actually keeps their mortgage for just 7-8 years.

In this comprehensive guide, we’ll overview the typical mortgage loan terms, discuss why most borrowers don’t keep loans for the full term, and provide tips on how to choose the right loan length for your situation

Average Mortgage Loan Lengths

The most common mortgage loan terms are:

• 30-year fixed – This is the most popular option, making up about 80% of new mortgages. Offers predictability with fixed monthly payments over 30 years.

• 15-year fixed – Next most common, with fixed payments over 15 years. Builds equity faster but requires higher monthly payments.

• ARMs – Adjustable-rate mortgages come in terms like 5/1, 7/1, and 10/1. Rates adjust annually after the first period.

• 10-year – A less common option for high income borrowers who want to pay off their home faster. Requires very high monthly payments.

• 40-year – Extended term allows lower payments on bigger loan amounts, but total interest paid is much higher.

• Interest-only – Only pay interest for the first 5-10 years, then principal and interest. Mostly used for investment properties.

Why Do Most Borrowers Not Keep Loans for the Full Term?

While around 80% of homebuyers opt for a traditional 30-year mortgage, research shows the average homeowner keeps their mortgage for only 7-8 years rather than the full 30-year term. There are several reasons why:

Refinancing for lower rates – If interest rates drop, many borrowers refinance to reduce their rates and monthly payments. This restarts the loan term.

Relocating – Job changes or growing families often mean moving to a new home. The mortgage gets paid off when the home is sold.

Upgrading homes – As income rises, some buyers want to upgrade into a bigger or nicer home requiring a new mortgage.

Divorce – A divorce settlement may require one spouse to keep the home and obtain a new loan in only their name.

Paying off early – Some borrowers intentionally make extra payments to pay down the principal faster and pay off the home early.

Foreclosures – Unfortunately, some borrowers are forced to foreclose on their home loan during periods of financial hardship.

Tips for Choosing the Right Loan Term

Here are some tips on picking the mortgage term that aligns with your financial situation and goals:

• Consider how long you plan to be in the home. Opt for a shorter term if less than 10 years.

• Crunch the numbers on 15 vs. 30-year terms to see tradeoffs in monthly payments and total interest paid.

• Keep payments comfortable at less than 28% of your gross monthly income. Don’t overextend.

• Know your break-even point where interest savings from a shorter term offset the higher payment.

• Get pre-approved to see amounts and rates for different term options side-by-side.

• Consider starting with a 30-year term but making extra principal payments to pay off in 20 years. Gives flexibility.

• Ask about “recast” options to re-amortize for lower payments if you make lump sum payments.

• An adjustable-rate mortgage may offer lower initial rates but carries risk when the rates adjust.

30-Year Loan Pros and Cons

Pros

• Lower monthly payments
• Fixed rates provide certainty
• Fits most budgets
• Build equity over time through payments
• No prepayment penalties
• Refinance if rates drop

Cons

• Pay more interest over the life of the loan
• Slower to build equity through payments
• Less motivation to pay off early
• Risk being “house poor” with high debt for 30 years

15-Year Loan Pros and Cons

Pros

• Interest savings by cutting loan term in half
• Faster equity build-up through higher payments
• Motivates discipline to pay off quicker
• Lower rates than 30-year loans
• Get out of debt faster

Cons

• Much higher monthly payments
• Need higher income to qualify
• Less flexibility if finances change
• Prepayment penalties may apply

Adjustable-Rate Mortgage (ARM) Pros and Cons

Pros

• Lower initial interest rates
• Qualify for larger loan amount
• Makes sense if not keeping long term

Cons

• Rates and payments increase at some point
• Difficult to budget with uncertain payments
• Risk of payment shock when rates adjust
• Generally not worthwhile long term

Should I Get a Shorter or Longer Mortgage Term?

Here are some guidelines on whether to opt for a shorter or longer term:

Get a shorter term if:

• You plan to stay in the home less than 10 years
• You can comfortably afford higher monthly payments
• You want to build equity faster
• You are highly motivated to pay off debt fast

Get a longer term if:

• You plan to stay in the home over 10 years
• You want flexibility with lower payments
• You expect your income to grow substantially
• You prefer to invest surplus funds versus prepaying

Discuss your goals and finances with a loan officer to determine the ideal mortgage term for your situation. While you can refinance later, it’s best to make the right choice upfront.