By Peter McDougall- BankingMyWay.com

When choosing a mortgage, which loan term is right for you?

If you’re buying a house, chances are you’ll look for a 30-year fixed-rate mortgage (FRM). But for those refinancing an existing mortgage, there are more choices. For example, should you go with a 15-year FRM to pay off your home more quickly? And though a 30-year FRM may cost more in the long term, will the cheaper monthly payments make it a more attractive option?

Which loan term is right for you depends largely on your financial situation and how many years are left on your first mortgage. Here are a few things to consider when making your decision:

Interest rates are usually lower for a 15-year mortgage than a 30-year loan. In North Carolina, for instance, Wachovia, Sun Trust Bank and Wells Fargo offer 30-year FRMs at 5.0%, 5.625% and 5.375%, respectively. The same lenders offer 15-year FRMs at just 4.75%, 5.0% and 5.0%.

But bear in mind that lower rates don't necessarily mean smaller payments. Fact is, even if interest rates are slightly higher on a 30-year loan, the monthly payments will be lower because your payments are spread out over a longer period. How much lower? Take the mortgage offers from Webster Bank in Massachusetts. The bank offers a 15-year FRM with an interest rate of 5.0% and 5.25% for a 30-year FRM. If you refinanced an existing $100,000 mortgage, your monthly payments would be $791 with the 15-year loan and just $552 with the 30-year loan. That's a difference of $239 a month, or $2,868 a year.

Despite lower monthly payments, you'll end up paying more for a 30-year loan. Based on the example above, a 30-year loan will cost you an extra $56,452 in overall interest -- $98,795 compared with $42,343 on the 15-year loan.

Best advice: Unless you need the lower monthly payments of a full 30-year loan to stay in your home, go for the shorter loan. After all, a longer-term loan may save you money in the short term, but end up costing you big bucks down the road.

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