In your search for the best fixed rate mortgage, you are probably going to come across 15- and 30-year fixed rate mortgages the most often. A 30-year fixed rate mortgage is a loan in which the interest is set at the same rate for the full 30-year term.
The 30-year fixed rate mortgage accounts for a very large percentage of all home loan mortgages, likely because of it’s reliability. Compared to an adjustable rate mortgage (ARM), the fixed rate mortgage is easy to understand and offers a consistent monthly payment which makes it simpler to budget into monthly expenses.
Why Choose a 30-Year Fixed Rate Mortgage?
The major reason why the 30-year fixed rate mortgage is the best mortgage for most people’s needs is because of the longer term of the loan, which makes monthly payments lower than one might find with a shorter term fixed rate loan, such as a 15-year fixed rate mortgage. Since the payments are spread over a longer period of time, less money is due every month and the borrower might be able to afford a more expensive property than they would otherwise with a shorter term and higher monthly payments.
Disadvantages of 30-Year Fixed Loans
The downside of the 30-year fixed rate mortgage is that typically, because the term is longer, interest accrues on the principal of the loan for a longer period of time. Therefore, assuming that you stay in the house for the entire period of the loan and pay off the mortgage, the overall cost of the loan is higher and you end up spending more on your house than you would have with a shorter term.
For many borrowers, however, this is not a major concern as they expect to move or refinance at some point before the 30-year term is completed. Additionally, the equity on the property can generally be expected to rise over a 30-year term, regardless of short-term fluctuations in the market.
If you are planning to sell your home, or believe that you will stay in your home for a long time, then the 30-year fixed rate mortgage might be an appropriate choice for you. If not, there are loan options with shorter terms, such as the 15-year version and even 10-year fixed rate mortgages.
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