How Long Is a Home Loan Good For? Offer vs. Loan Term
Unpack the different durations of a home loan, from the validity of lender offers to the long-term repayment schedule.
A home loan’s duration can refer to two distinct periods: the time a lender’s offer remains valid and the total time allotted for repaying the loan. Understanding these aspects helps prospective homeowners manage expectations and financial planning.
Validity of Pre-Approval and Rate Locks
A home loan pre-approval letter provides an estimate of how much a lender is willing to offer based on a preliminary financial review. It is a conditional offer, not a final loan approval, providing a realistic budget for your home search. Most pre-approval letters are valid for a period ranging from 60 to 90 days, though some are as short as 30 days. This validity period allows time to find a suitable property and proceed with a full loan application. If the pre-approval expires before a home is found, a borrower must reapply, which may involve another credit check and updated financial documents.
A rate lock is an agreement from a lender to hold a specific interest rate for a set period. This protects the borrower from potential interest rate increases while the loan application progresses toward closing. Common rate lock durations are typically 30, 45, or 60 days, though some lenders offer longer periods up to 120 days. The rate lock period should be chosen to align with the expected closing date of the home purchase. If the closing is delayed beyond the locked period, it may be possible to extend the rate lock, often for an additional fee.
Loan Commitment Period
Beyond pre-approval, a loan commitment letter is a formal, final approval from the lender after the underwriting process is complete. This letter signifies the lender’s commitment to provide the loan, assuming all outlined conditions are met before closing. It is a stronger assurance than a pre-approval and includes the approved loan amount, interest rate, and loan term. This commitment letter also has an expiration date, which is tied directly to the scheduled closing date.
The validity period for a loan commitment letter commonly ranges from 30 to 60 days. If the closing is delayed past this date, the borrower may need to request an extension from the lender. An expired commitment letter can lead to a reevaluation of financials and changes in loan terms or interest rates. A new commitment letter may be required if the original expires.
Standard Loan Repayment Terms
The term of a home loan refers to the total length of time a borrower has to repay the principal and interest. This repayment period significantly impacts both the monthly payment amount and the total interest paid over the loan’s life. Fixed-rate mortgages are popular for their predictable monthly payments, as the interest rate remains constant for the entire loan term.
The most common fixed-rate mortgage terms are 15 years and 30 years. A 30-year mortgage typically results in lower monthly payments, but the borrower pays more total interest over the longer duration. Conversely, a 15-year mortgage involves higher monthly payments but substantially reduces the total interest paid due to the shorter repayment period. Other fixed-rate terms, such as 10-year, 20-year, or 25-year options, are available, offering various trade-offs between monthly payment size and total interest cost.