It’s time to buy a home. This is an exciting time for you and your family. The homebuying process comes with a learning curve as you probably already know. We’re here to help you every step of the way. There are many different loan program options and the best one for you depends on your unique financial situation. Here, we’re talking about one of the most common types of mortgage options available for you – a 30-year fixed-rate mortgage.
What is a 30-year fixed-rate mortgage?
A 30-year fixed-rate is probably the most popular option for homebuyers. Let’s talk about why you might choose this option.
Here’s some mortgage lingo. What’s a loan term? A loan term includes the specific features of your mortgage like the amount of time you have to repay the loan, your interest rate, and the amount you pay each month. On a 30-year fixed-rate loan, the interest rate doesn’t change.
What’s a mortgage payment? The monthly amount you owe on your home includes the principal amount you owe, interest, taxes, and insurance. Payments are predictable every month with a 30-year fixed-rate mortgage. They won’t change when the market fluctuates unless you decide to refinance your existing loan. In comparison, adjustable-rate mortgages (ARMs) have interest rates that adjust based on the market. Find out more about fixed-rate and ARM loan comparisons here.
Yes, 30 years is a long time. But you might choose this loan so your monthly mortgage payments are more manageable because they’re spread out over a longer period of time than a 15-year fixed-rate loan. These loans are great for first-time homebuyers and anyone who finds it easier to budget and plan around the predictability of a fixed payment.
With smaller monthly payments, you have the freedom to buy a more expensive home or save money for other financial goals. Your payments are spread over a period of 30 years, but lenders often allow you to pay if off faster.
There are options available for 30-year fixed-rate loans for first homes, investment properties or second homes, and refinances. Guild has options for Conventional, USDA, FHA, VA, and Jumbo loan programs. The best fit is determined by the details of your situation including your credit scores, debt, income, and down payment.
What’s the difference between a 15-year and a 30-year mortgage?
Let’s break down the difference in the benefits between these types of loans for you:
30-year fixed-rate mortgage = smaller monthly payments but more total interest paid
15-year fixed-rate mortgage = big savings in total interest paid but higher monthly payments
30-year fixed-rate mortgage benefits and disadvantages
Pro: Lower monthly payments. A 30-year mortgage lets you save on monthly mortgage payments. Rather than spreading your loan payments over just 15 years, you have double the time to repay what you’re borrowing. Even though you will wind up paying more interest, your monthly payments will be more manageable. Smaller payments may offer more financial flexibility. You can spend or save that extra money however you’d like.
Pro: Flexibility. It might be nice to have a lower monthly payment, with the option to make a higher payment if you’re able. For example, if you work a commission-based job and you have a good month, you can pay more than your mortgage payment minimum to pay off your loan faster, but on a slow month, you might be glad the minimum isn’t as high.
Pro: You can buy a more expensive home. By spreading out your monthly payments, you might be able to afford more home than you think. You can chip away slowly at a more expensive home rather than barely affording a 15-year loan’s monthly payments.
Pro: You know what to expect. You don’t have to worry about the interest rates or payments changing on your loan. You might have a slightly higher interest rate than if you had an adjustable-rate mortgage, but you can plan and budget accordingly.
Pro: Tax Deductions. Higher interest over the life of the loan increases the amount you can deduct at tax time, potentially reducing or eliminating your federal income tax liabilities.*
Con: It takes a lot longer to own your home. Your home equity builds at a slower pace because payments during the first several years go largely toward interest rather than principal. You won’t fully own your home for 30 years rather than 15.
Con: You pay more interest. This is the biggest disadvantage. You’ll pay significantly more interest over the life of the loan. Still, so many Americans choose to finance their loan with a 30-year fixed-rate loan because of all the advantages.
*Always consult an accountant or tax advisor for full eligibility requirements on tax deduction.
The above information is for educational purposes only. All information, loan programs and interest rates are subject to change without notice. All loans subject to underwriter approval. Terms and conditions apply. Always consult an accountant or tax advisor for full eligibility requirements on tax deduction. *By refinancing an existing loan, total finance charges may be higher over the life of the loan. *Information is for general illustrative purposes only. The information is believed to be reliable, but Guild Mortgage does not warrant its completeness, timeliness or accuracy. Guild Mortgage assumes no responsibility for errors or omissions in the information provided. *Typically, a non-purchase second mortgage. **Please consult your financial advisor on the consolidation of short term debt into long term debt.