The 30-year fixed rate mortgage has long been America’s most popular home loan, and for good reason. For decades now, homebuyers have made this choice over and over again. Let’s explore why.
Why is the 30 Year Fixed so Popular?
The 30-year fixed rate mortgage offers a competitive interest rate that remains fixed for the entire term of the loan. This means the mortgage payment for principal and interest will never change, providing stability to the borrower. (If your payment includes escrow amounts for taxes and insurance, that portion could still change.) Setting your budget and predicting your cash flow is easier with a fixed rate mortgage. Since it’s amortized over 30 years, you have 360 identical principal and interest payments. The fixed rate you secure today will be the same rate 10, 20, and 30 years from now.
The 30-year fixed rate mortgage is an especially attractive feature for many homebuyers because, with as little as 5% down, it becomes easier to make the commitment to purchase a home. While mortgage insurance will be required on down payments of less than 20%, the lower down payment can dramatically shorten the homeownership timeline for some buyers. Many eventually refinance to another fixed rate mortgage to eliminate mortgage insurance when property values increase.
Is 30 years too long? While 30 years may seem like a lifetime, securing a 30-year, fixed rate at today’s low rates has another benefit. Many 30-year, fixed rate products have no prepayment penalty, which means you can prepay the principal without incurring additional costs. Extra payments made to the principal of the loan will, in fact, reduce the life of the loan below 30 years. These extra payments are not mandatory, but can be made whenever you feel comfortable.
Is Now the Time to Consider a 30 Year Fixed Mortgage?
Today’s mortgage rates offer consumers a tremendous opportunity to purchase or refinance a home. For several years, rates have been at or near historical lows, making them attractive to borrowers. In addition, home prices have continued to remain low.
However, recent news reports suggest that the Fed may soon raise rates, signaling a possible end to these historically low rates.
If you’re paying rent, your monthly payments may be higher than mortgage payments. And renting, of course, is never-ending, while a mortgage has a definite end point, giving you sole ownership. With 30-year fixed rates this low, think of it as an opportunity you can take and run with—right into your new home!
Considering a 30-year fixed rate mortgage? A ditech Home Loan Specialist can help you determine whether this is the right choice to make for your situation. Find a Home Loan Specialist now.