What is a 30-year fixed rate mortgage?
A 30-year fixed mortgage is a loan whose interest rate stays the same for the duration of the loan. For example, on a 30-year mortgage of $150,000 with an interest rate of 3.75%, the monthly payments would be about $2,357.39. So, the interest rate of 3.75% stays the same for the life of the loan.
Who should get 30-year fixed rate mortgages?
Most people choose to buy a home and finance it with a 30 year fixed rate mortgage. There are no surprises and these loans are highly predictable The payment remains fixed and can easily be managed within a budget. This loan is attractive to home owners who intended on staying in the home for a while and want a mortgage payment that is spread out over a long term. A 30 year fixed rate mortgage is one of the programs that has made home ownership affordable.
What are the advantages and disadvantages of 30-year fixed rate mortgages?
The pros of a 30-year fixed mortgage: it’s a predictable monthly payment; it’s a hedge against inflation (the rate is not tied to the index, so it doesn’t go up or down); it’s relatively simple and maintenance-free (you don’t need to worry about rate fluctuation); it provides a tax deduction from the interest you pay on your mortgage; and if rates drop significantly, you can refinance.
The cons of a 30-year fixed mortgage: rates and payments are usually higher than 15-year fixed mortgages and adjustable rate mortgages (ARMs), and if the owner decides to sell the home in less than five years, they could end up paying more interest vs. an ARM.