30 Year Fixed Mortgage
What is a 30-year fixed 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 $300,000 with an interest rate of 5.75%, the monthly payments would be about $2,357.39. So, the interest rate of 5.75% stays the same for the life of the loan.
Who should get 30-year fixed mortgages?
People who don’t like surprises and those who desire a predictable, fixed deduction from their monthly budget are well-suited for 30-year fixed mortgages. It’s also attractive to people who plan to stay in the house for more than 5-7 years and desire a mortgage payment spread out over many years so it’s more affordable.
What are the advantages and disadvantages of 30-year fixed 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.