Why Are 30 Year Fixed-Rate Mortgages So Popular?
Fixed rate mortgages have been around for as long as sliced bread. It is very likely that your parents (and maybe even your parents’ parents) financed their first home with a 30 year fixed-rate mortgage. And now you are considering a 30-yr fixed for yourself.
Why does the 30 year fixed-rate mortgage remain the top choice for the majority of American home buyers? Lower payments, variable income, and plans to eventually buy again are a few good reasons to consider this staple loan option.
Lower Monthly Payment
The simplest debate between mortgage options usually lies between how much you want to pay each month. A lower monthly payment presents a number of advantages:
Room in the budget – Are you are planning on home improvements? Or perhaps you just like to leave enough room for whatever adventures come your way. A 30 year fixed-rate mortgage will free up more cash than a shorter-term payment schedule.
More house – Because the payments are spread out over a longer period of time, a 30-year mortgage will generally allow you to purchase more house than you otherwise could afford on a 15-year schedule. Mortgage calculators are a great tool in comparing how much you can afford on monthly basis.
Savings and Investments – With a lower amount of the monthly budget going towards housing, there is an opportunity to grow the remainder by placing it into savings and investment accounts. You might choose to use those funds to pay down the loan in the future.
Those who are self-employed; work on commission; or anticipate a career change might be better off keeping their monthly commitments as stable and low as possible. As long as your loan has no pre-payment penalties, you can always make larger payments during those months when the going is good.
Duration of Ownership
Perhaps you have found an ideal home, but you know it’s not the “forever” home. A 30-year fixed is typically the best route if you plan to own your home for less than 10 years. The stretched payment schedule will mean you paid less toward principal and interest than if you were on a 15-year mortgage.
Just as with each mortgage type, every borrower’s situation is unique. The type of home you are searching for, how much you are willing to put down, and current interest rates will factor into your decision. Speak with a lender to find out which option is best for you.