If security and stability are what you’re after, a 30-year fixed mortgage may be right up your alley.
With monthly payments that never change and lower interest rates, a 30-year fixed mortgage will help you plan your monthly budget and stay on track as you make long-term financial plans.
In this guide, we’ll cover the pros and cons, the types of loans you can get with a 30-year fixed, and answer some common questions.
Let’s dig in!
30-year fixed-rate mortgages are popular mortgages for a reason: they offer stability. Your interest rate and monthly payment won’t change, so you can budget accordingly without having to worry about rates in the event they rise.
30-year fixed-rate mortgages have some of the lowest rates out there.
Lower interest rates mean more money in your pocket each month to do as you wish.
Many people find peace of mind in the fact that their payment never changes.
A fixed-rate mortgage means that your interest rate will never change over the term of your loan (unless you refinance). This means that your monthly payment will be the same amount every month for the life of your loan.
Also, because it’s for 30 years, you are stretching out payments over a longer period, resulting in a lower monthly payment every month.
Because of the lower payment, more people are eligible to get approved as well.
The lower your debt-to-income ratio, the easier the approval.
Lower payments also allow you to buy a bigger home since your debt-to-income ratio is lower.
For example, on a $200,000 house for 30 years, your payment would be around $1,300/month.
On a 15-year, that same house would have a payment of nearly $2,000/month.
Nothing beats knowing the future.
With a 30-year fixed-rate home loan, you’ll never have to worry about potential rate increases that could cause an increase in payments down the road.
This is our favorite.
- Early payoff – Remember – the “30” is just a number. You can turn a 30-year mortgage into a 2-week mortgage if you want. If you’re in a good financial spot and can make larger payments so you can pay the loan off early, there’s no pre-payment penalty. If not, no big deal. Same fixed payment every single month.
- Refinance – Rates drop? Great, refi and take advantage.
- Sell – Moving? Have house prices skyrocketed? Awesome, cash out if you feel like it.
- Make home improvements – Certain improvements to your home can increase its value, which can add equity to your home. Just be smart with what improvements you choose.
There are 2 sides to every coin.
Here are some of the cons:
The longer the term of a loan, the more interest you will pay. With a 30-year mortgage, you are borrowing money for a much longer period, so if you just pay the minimum every month, you’ll simply pay more interest – just like a credit card.
The truth is, very few people hold onto a mortgage for the full 30 years. But if you did, yes, it would take longer to pay it off.
Because of the term of the loan, most of the payments go to interest for the first 15 years – which means the principal balance doesn’t go down as much.
As a result, the spread between your home value and the loan amount takes longer.
Since the 30-year fixed-rate mortgage is the most popular, you can get it with several different loan programs.
When applying for a conventional loan, there are two types: conforming and nonconforming.
Conforming loans meet the regulations to be sold to Freddie Mac or Fannie Mae, while nonconforming do not.
Typically, the criteria for these types of loans are stricter than government-backed ones such as FHA loans; usually requiring a minimum credit score of 640 with a debt-to-income ratio below 50%.
Insured by the Federal Housing Administration (FHA), an FHA 30-Year Fixed-Rate mortgage is a great option if you’re looking for a low-cost way to finance your home.
The reason its costs are lower than a Conventional is that you may be able to put down less and get seller contribution up to 6%. This lowers your out-of-pocket cash costs dramatically.
Oh, and the rates are usually better as well.
Backed by the Department of Veterans Affairs (VA), these loans carry lower risk as well.
The rates on VA loans are comparable and sometimes better than FHA.
The only catch is you have to be a service member on active duty, a veteran or a surviving spouse – as long as you have your certificate of eligibility (COE).
Just like the VA loan, these are 100% financing and have amazing rates.
The only caveats are that you have to buy a home in a USDA-eligible area and meet the USDA income requirements.
While most folks that get a jumbo loan go with an ARM, there is a handful that decides to go with a fixed.
Usually, they know that they are going to pay it off in a much shorter period so they don’t have to worry so much about interest rate changes.
Rates on these are higher than all the others because of the much larger loan amounts.
Rates change multiple times a day. To get a fresh rate quote, click here.
30-year fixed mortgage rates are set by a variety of factors, including the current economic environment, government policy and demand for mortgages.
Generally speaking, when interest rates in the economy rise or fall so do 30-year fixed mortgage rates as lenders adjust their pricing accordingly.
Mortgage lenders also factor in their overhead costs before setting an interest rate on any loan product they offer.
Any time you can pay off a loan sooner than you’re supposed to, you win.
You win by not paying all the interest throughout the entirety of the loan which can save you thousands of dollars in interest costs over the life of the loan.
You also win because paying off a loan early means your monthly payment amount goes down and you have more cash flow to do what you wish.
However, it’s always smart to plan and assess your financial situation before paying off a big loan in one lump sum.
It depends on what’s important to you.
15-year mortgages have lower rates, but higher payments.
30-year mortgages have a little bit higher rate, but lower payments.
If predictability is important to you, then consider a 30-year fixed-rate mortgage.
Keep in mind the flexibility that it offers, and use it to your advantage.