Searching for a low 30 year fixed mortgage rate? loanDepot offers a variety of low fixed mortgage programs to help you meet your financial goals. Our professional loan experts are here to guide you to a successful home purchase or refinance transaction.
What is a 30 year fixed rate mortgage?
The 30 year fixed mortgage is a simple loan program that is one of the most popular choices for homebuyers today. This fixed rate mortgage is a home loan with an interest rate that remains the same throughout the 30 year term. At the end of the 30 year repayment period, the loan is fully amortized. This means that the total principal (the face value of the loan) has been paid off in full in multiple installments. This type of mortgage can be a great choice for those borrowers who prefer to have a significant amount of wiggle room in their budget. A 30 year term allows a more affordable monthly payment by stretching out the repayment of the loan over a long period.
What is the difference between a fixed rate and adjustable rate mortgage?
Taking out a mortgage is one of the biggest financial decisions you will ever make. It gives you the ability to own your own home, but it is also a serious commitment for many years. This is why it is important to evaluate your choices thoroughly before signing on the dotted line. One of those important considerations is choosing between a fixed rate and an adjustable rate mortgage, or ARM.
With a fixed rate mortgage loan, the interest rate you start with will stay the same throughout the life of your loan, unless you choose to refinance your loan down the road. This means that your monthly payment of principal will remain the same for the entire term of the loan. Nine of out ten borrowers choose this type of mortgage because it typically allows for the lowest possible mortgage payment.
For those who are willing to look beyond the typical fixed term loan, an adjustable rate mortgage, or ARM, could be the right way to go. This type of mortgage offers introductory mortgage rates, known as teaser rates, for up to the first ten years of the loan. After the introductory period expires, the rate resets to reflect current market rates. Although there is more risk associated with ARMs, the banks offer borrowers lower interest rates during the introductory, non-adjusting teaser period of the loan.
A key factor when choosing between a fixed rate and an adjustable rate is recognizing how long you plan to live in your home. If you intend on staying in the home for just a few short years before selling, then an adjustable rate loan could be your best bet. The teaser interest rate in an ARM will be lower than a fixed rate mortgage. However, keep in mind that if rates rise at the end of your introductory period you risk a rate adjustment, which could result in a payment increase in the future.
If the thought of a sudden rate increase in the future makes you cringe, then the certainty of a stable monthly mortgage payment with a fixed term loan will be more suitable to your needs. A fixed rate mortgage offers you consistency that can help make it easier to set a budget.
Who may benefit from a 30 year fixed mortgage vs. different term?
If your goal is to have a predictable loan with an affordable and consistent payment each month, then the 30 year fixed loan can be your best choice. A fixed rate term provides a reliable and stable monthly payment for the life of the loan. Because mortgage payments remain the same from month to month, homeowners can easily budget their financial obligations.
Despite being locked into a loan for 30 years, you still have the ability to pay off the balance faster if you are able to. Since this type of loan offers a low monthly payment option, you may be able to allocate a bit extra towards your principal each month. Paying just a few hundred dollars more each month can help you pay off the house a few years sooner.
Consider the following pros and cons to determine whether a 30 year fixed mortgage could work in your favor.
More Purchasing Power
When you choose a 30 year loan, you have more purchase power, meaning you will typically qualify for a more expensive property than if you had spread the loan over a shorter term. This could give you the additional square footage or get you into a neighborhood that would otherwise be too expensive.
Your financial situation can change overnight – one day you’re earning the big bucks, and the next you’re at the unemployment office. A 30 year loan therefore helps you keep your options open and absorb life’s surprises. Going with a fixed 30 year mortgage term and keeping your payments low can provide a measure of security and peace of mind.
Curious about what your monthly mortgage payment could look like? Check out this mortgage calculator
, and plug in the numbers to your specific situation.
Safe and Predictable
No matter how high the interest rates climb or the state of our economic environment, you can always count on the same, predictable monthly payment with a 30 year fixed loan. Borrowers who have tighter budgets tend to favor a 30 year loan because it offers more predictability and a lower monthly payment than a 15 year fixed rate mortgage.
Although you will end up paying more in interest overtime, the 30 year term can allow you to contribute to other areas such as your 401k, child’s college tuition, or stocks. Unlike other shorter term loans, your monthly payment won’t consume a large chunk of your take home pay, therefore giving you an opportunity to invest elsewhere.
Ability to Pay Off Your Mortgage in Less Time
If you are able to add a few hundred dollars to your monthly payments, you can easily turn your 30 year loan into a shorter term. There is no penalty for paying more per month and choosing to do so will help pay off the loan in fewer years. Directing the additional payment toward the principal will also save money that would have otherwise compiled interest.
Higher Interest Rate
The primary disadvantage of a 30-year mortgage is the interest rate is higher. That’s the price you pay for having extra time to pay off the loan, and the cost can be fairly steep. A 30 year fixed mortgage will compound more overall interest than a shorter term, which ultimately translates to spending more money over the life of the loan.
Accumulate Equity Slower
Building equity is one of the primary financial benefits of homeownership. When you pay down your mortgage faster, you not only save substantially on interest, but build equity at an accelerated rate. Thus, if your main goal is to build equity, you may be better off going with a shorter loan than a 30 year term.
After evaluating all the pros and cons of a 30 year fixed mortgage, does the stability of an affordable monthly payment still sounds good? If so, let’s take a look at an example:
Comparing a $300,000 fixed rate mortgage for 15 years at 4.875% (APR 4.986%) and a mortgage for 30 years at 5.375% (APR 5.443%), you get the following results (not including homeowner’s insurance, property taxes or private mortgage insurance):*
As illustrated above, even though a 30-year loan will cost you more in interest than the 15-year term, the monthly mortgage payment is substantially lower ($1,679 versus $2,352). If you have a tighter budget, the 30 year fixed loan can give you the peace of mind of being able to afford your payment.
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* The above example is for illustration purposes only and uses the following scenario to compare a 15-year fixed and a 30-year fixed rate loan. Rate assumes a $300,000 loan amount, 80%LTV with a credit score of 740+. Loan limits may apply.
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