Pros and Cons of a 30 Year Fixed Rate Mortgage

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Charity Alund of Fountain Mortgage knows a thing or two about mortgages.

Author: Charity Olund

What is a 30 Year Fixed Rate Mortgage?

A 30 year fixed rate mortgage has the same interest rate for the life of the loan. The bulk and percentage of your monthly payment will not be affected, even if the market changes. But keep in mind that the monthly mortgage payment most often includes the principal, interest rate, homeowner insurance premium, and property taxes. In a 30-year fixed-rate mortgage, the first two will never change, but the last two can (and often will) grow over the years.

Pros of a 30 Year Fixed Rate Mortgage

A 30-year fixed mortgage has three main advantages:

  1. Smaller monthly payments:
    With a 30-year loan maturity, your monthly payments will be more affordable than with a shorter loan term. A longer loan term can make the cost of home ownership more manageable.
  2. Predictable monthly payments:
    Since the mortgage interest rate never changes, your principal and interest payments never change either. Throughout the 30-year loan term, you will know exactly how much you will have to pay each month, making planning and budgeting easier. But again, keep in mind that the portion of your mortgage payment that covers real estate taxes and insurance may increase.
  3. You can get a more expensive house:
    A lower payment on a 30-year mortgage may allow you to buy a more expensive home. Just make sure you don’t do more than you can really afford.
    Find out how much you can afford by visiting our team.

CONS of a 30 Year Fixed Rate Mortgage

Despite the popularity of fixed mortgages for 30 years, there are some disadvantages to keep in mind:

  1. Higher interest rate:
    By giving you 30 years to pay off your mortgage, lenders are taking more risk. To offset this risk, lenders usually charge you a higher interest rate on a 30-year fixed mortgage compared to shorter term loans.
  2. More than the total amount of interest paid:
    A 30 year mortgage makes monthly payments more affordable. However, a longer loan term means that more interest will be charged on your loan, resulting in you paying back much more than you originally borrowed.
  3. More time to build capital:
    Due to the lower monthly payment and the longer loan term, most of your payment will go to interest that accumulates monthly on the mortgage, rather than the principal. With a 30 year mortgage, it will take you longer to build a net worth in your home.

If you are currently using a 30-year fixed-term mortgage, this may be the best time to refinance to a 15-year term. You will save thousands of percent and accumulate capital faster. Plus, home values ​​are high and interest rates are low, so now is the perfect time to cash out for home improvement projects, college tuition, debt repayment, or simply fund your emergency fund.

Schedule a 15 minute info call with our team at Fountain Mortgage to discuss all of your options. Or stop by the Fountain Mortgage Café at our new headquarters in the heart of Prairie Village at 75th Street and Mission Road.

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