Introduction To 30 Year Fixed Rate Mortgages
What exactly is a 30 year fixed rate mortgage?
A 30 year fixed rate means that you will be paying the same payment every month for your home. Your mortgage rate will not go up even if rates spike. This is a benefit when you are trying to budge how much your home expenses will be every month. If you choose a 30 year fixed rate, your payments will be lower than with a shorter term. This means that you may be able to afford a bigger or more expensive home. For those who need to think about a housing budget, a 30 year fixed rate may be more practical than a 15 year because of the predictability of lower payments.
Are there disadvantages to a 30 year fixed rate mortgage?
Interest in the biggest disadvantage to a 30 year fixed rate. You will be paying a lot of interest over the life of your loan. 30 year fixed rate often times have a bit higher rate meaning you will be paying even more interest. And, 30 years is a long time to wait before you actually own your home outright.
A 15 year fixed rate mortgage means that your repayment time will be cut in half. This means you will be paying much less interest in the long run.
Bankrate has an excellent mortgage calculator that will allow you to see the difference in monthly payments between a 15 year or 30 year fixed rate. It is good to remember that monthly payments are dependent on the interest rate, the amount you put down for a down payment, your credit score, and income. Educate yourself on how to find the absolute best mortgage rate.
Below is an example of the monthly payments for a $200,000 mortgage:
30-year fixed-rate-mortgage rate of 4.5%
Monthly Payment: $1013
Interest Paid First 5 Years: $43,118
Total Interest Paid: $164,813
15-year fixed-rate-mortgage rate of 4%
Monthly Payment: $1479
Interest Paid First 5 Years: $34,881
Total Interest Paid: $66,288
So, as you can see the monthly payment with a 15 year fixed rate is $466 more than with a 30 year fixed rate mortgage. You will also be paying an additional $98,525 in interest with a 30 year fixed rate as compared to a 15 year fixed rate. You must also factor in things like property tax, homeowner’s insurance, utilities, HOA fees, and mortgage insurance when making your family budget. These fees can be quite significant and should be taken into review.
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