A 30 year fixed rate mortgage is the traditional option most people think of when they talk about mortgages. These mortgages offer a lot of benefits, and they could be the right option for you. If you want the following benefits, you should probably think about this type of mortgage.
With a 30 year fixed rate mortgage, you get a lot of predictability. From the first month you have the mortgage until the very last month, your payments are exactly the same. That is because the interest rate never changes on the mortgage, and the lender sets up your payments so they are consistent throughout the life of the loan.
In contrast, with an adjustable rate mortgage, the interest rate changes after a certain amount of time, and that changes your monthly payment.
Commitment to Your Home
However, in exchange for that unpredictability, adjustable rate mortgages usually start with slightly lower interest rates than 30 year fixed rate mortgages. If you plan to sell your home before the rate is scheduled to adjust, you may want to think about adjustable rate mortgages. In contrast, a 30 year fixed rate mortgage is usually the best option if you plan to commit to your house.
A Long Time to Pay
As implied by the name, 30 year fixed rate mortgages let you pay off your mortgage over a 30 year time period. If you buy your home when you’re 30 and you don’t move, you will be paid off by the time you turn 60. Then, you don’t have to worry about a mortgage payment during your retirement.
But, in some cases, you may not want to take that long to pay. For instance, if you’re buying your first home at age 50, you may want to look at 15 year mortgages. They require higher monthly payments, but they usually offer lower interest rates and help you pay off your home faster. If you want to pay off your home in 15 years but don’t want to commit to a 15 year mortgage, you may want to take out a 30 year mortgage and just make extra payments.
Easier Qualification Terms
Because the payments with a 30 year fixed rate mortgage are usually lower than they are with a 15 year mortgage, it’s usually easier to qualify for a 30 year fixed rate mortgage. Additionally, there are programs such as FHA loans, VA mortgages, and USDA home loans that can make the qualification process even easier.
Alternatives to the 30 Year Fixed Rate Mortgage
There are a few downsides to the 30 year fixed rate mortgage, and if you don’t like any of the following potential issues, you may want to look into alternatives:
- Higher Interest Rates — If you don’t like the interest rates on 30 year fixed rate mortgages, you may be able to save by taking out an adjustable rate mortgage or a 15 year mortgage.
- More Interest Over the Life of the Loan — Because the term (repayment time) is so long, you end up paying a lot of interest over the life of the loan. You can reduce your interest by taking out a mortgage with a shorter term.
- Slow Equity Growth — Equity is the portion of your home that you own. You don’t owe the bank any money on that part of your home. To speed up your equity growth, you may also want to look for a mortgage with a shorter term.
A 30 year fixed rate mortgage is the best option in many situations, but these mortgages aren’t right for every single situation. When you work with us at BrightPath, we help you find the best mortgage for your needs. To learn more, contact us today.