When you’re ready to buy a home, the loan options and terms can make the process seem complicated. How long will your loan term be? Do you want a fixed-rate mortgage loan or an adjustable-rate mortgage loan?
Your mortgage lender will explain your loan terms and options to you, and help you choose the mortgage option that best fits your financial needs.
30-Year Fixed-Rate Loan: Pros
More Affordable Payment
When you compare the monthly payment on a 30-year fixed-rate mortgage loan to a shorter term mortgage, like a 15-year term mortgage, the payments are often smaller and more affordable. The fixed-rate means your interest rate won’t change throughout the life of your loan. However, with an adjustable-rate mortgage loan, your rate can change and could increase your monthly payment.
Flexibility and Predictability
With a 30-year fixed-rate mortgage loan, you have the flexibility to pay off your loan faster if you’re able to. Since this type of loan offers you a low monthly payment option, you may actually be financially able to pay a little more than what you owe each month. Maybe you’re able to pay more in September and October but can only afford your normal payment in November and December. Just be careful if your loan has prepayment penalties, which may penalize you if you pay over a certain amount of your loan balance in one year.
30-Year Fixed-Rate Loan: Cons
You Pay More Interest
Your interest rates on a 30-year fixed-rate loan will be higher, even though it will stay the same throughout the life of the loan. When you get a 30-year fixed-rate loan, your mortgage lender’s risk of not getting paid back is spread over a longer period of time. For this reason, lenders charge higher interest rates on loans with longer terms.
It Might Not Be The Right Loan For You
A 30-year fixed-rate loan might not match up with your other life goals. Maybe you’d like the end of your loan term and your retirement to coincide. This might mean you want a 20-year loan term, not 30. When deciding what loan terms and options are right for you, think about how much of a monthly payment you are comfortable with. Also, consider what current interest rates are like, and the length of the loan term you want. Your mortgage will be able to guide you through the process and explain the different options available for your financial situation. A 30-year fixed-rate mortgage loan might be the right loan option to get you into the home of your dreams.
