Overview of the 30-Year Fixed Rate Mortgage
When it comes to mortgage rates things are constantly changing. Everyday a new mortgage product hits the market while an old one becomes extinct. Guidelines, rules and regulations are always being updated. However, even with all the changes the 30-year fixed rate mortgage is still very popular and still very much available. So what exactly is a 30 year fixed rate mortgage?
Well as the name implies, a 30-year fixed rate mortgage is a mortgage that you would repay over the course of 30 years. Every month you will send in your monthly payment. A percentage of that payment will cover interest for the previous month and the remaining will pay down the principle on your balance. As you pay your loan you will owe less and less interest and eventually your balance will equal zero.
Since this is a fixed rate mortgage your required principal and interest payments will never change. This is one of the things that makes the 30-year fixed rate mortgage so popular. When you have a fixed rate you know exactly what you will be paying each and every month. This makes it a lot easier for you to manage your finances. Because no matter what happens in the economy, your mortgage payment will never change.
Giving people the option to repay their mortgage over a 30 year period makes buying a home possible for more people. You see, before the great depression most mortgages where for 5 year terms. Because of this very few people were able to own homes during that time. But thanks to mortgages that have 20 or 30 year repayment terms, more and more people are able to realize the dream of owning a home.
And while there are a lot of wonderful things about a 30-year home loan, there are also a few not so good things. While your rate won’t go up over time, it won’t go down either. That means if you purchased your home with a five percent interest rate and a few years later interest rates go down, your still stuck making the same payments. And the only thing you can do to lower your interest rate is refinance.
Another disadvantage is the amount of interest you will pay over the course of the loan. Let me give you a real life example, If you financed a $100,000 loan for 5 years you would only pay $10,499 in interest. If you finance that same amount for 30 years, you will pay $71,870 in interest. That’s a big difference.
With that being said, it’s safe to say that a 30-year fixed rate mortgage isn’t for everyone. If you want the comfort of knowing your monthly payments will stay the same no matter what, then this is the loan for you. It’s ideal for those on a fixed income, investors and people who have a hard time budgeting their money. To qualify just speak with a lender and they will tell you your options. Generally speaking it is a lot easier to qualify for this type of loan than other loans.