30-Year Fixed-Rate

What is a 30-year fixed-rate mortgage?

A 30-year fixed-rate mortgage is a home loan that is structured to provide an unchanging interest rate and fixed monthly payments over the course of the loan term.

Opting for this loan structure means the rate will not change for the life of the loan, something that can be appealing to renters who face annual rent hikes as inflation and cost-of-living increases.

A 30-year fixed-rate loan is intended for anyone wishing to take advantage of the lowest rates while also enjoying the perks of a fixed monthly payment. While some other mortgage loan structures adapt to current interest rates (like an adjustable rate mortgage), the amount of interest on a fixed-rate mortgage won’t budge. The 30-year fixed-rate loan is the standard option for all traditional financing options, including conventional, FHA, VA, and jumbo financing.

Is a 30-year fixed-rate loan better than a 15-year fixed-rate loan?

With a shorter loan period, buyers pay less in overall interest over the life of a 15-year fixed-rate loan compared to the 30-year fixed-rate option. However, the lower monthly cost that comes with the 30-year fixed-rate mortgage allows for more liquidity and less risk should any unexpected economic conditions impact your mortgage payments.

If you are conflicted between 30-year and 15-year fixed-rate loan options, we recommend defaulting to a 30-year fixed-rate – and making additional monthly payments whenever you prefer. With a 30-year fixed-rate loan, you can choose to prepay your mortgage early with zero penalty.

What are interest rates for a 30-year fixed-rate mortgage?

30-year fixed-rate loans are the standard choice for many buyers, regardless of financing type. The 30-year will often be the benchmark for comparisons when comparing different options.

Less popular options, such as 15-year fixed-rate loans and adjustable-rate mortgages, will have interest rates 1/8% to 1/2% lower, at the expense of higher monthly payments for loans with shorter loan terms and less security for variable-rate mortgages.

What are the advantages of a 30-year fixed-rate mortgage?

One of the most significant advantages of a 30-year fixed-rate mortgage is having a predictable monthly payment and more financial stability, as your payments will remain the same over the life of the loan. Having the ability to predict your largest recurring expense for the next few decades can provide a huge advantage in financial planning.

Your monthly payments are divided between the principal loan amount and generated interest. As you pay down your loan balance, more and more of your monthly payment is allocated towards paying down the principal loan balance vs. interest.

Our amortization calculator shows how your monthly payment allotment changes over the course of the 30-year loan term.

What’s the difference between fixed-rate and adjustable-rate mortgages?

Unlike a 30-year fixed-rate mortgage, adjustable-rate mortgages (ARMs) have an interest rate that fluctuates up or down depending on market conditions.

Because of the unpredictability of interest rates and the dependency on the current market, ARMs are a riskier option. If interest rates rise significantly, your monthly payment has the potential to soar above what you are comfortable paying. Conversely, if rates were to go down, you would end up paying less interest.

Pros

Hedge Against Inflation

Fixed monthly payments protect against cost-of-living increases and inflation. As rents increase and home values appreciate, having a fixed, low monthly payment with a 30-year loan will become more beneficial over time.

Fixed monthly payments also provide added security and peace of mind if your financial situation should change or interest rates start to rise.

Low Monthly Payment

The 30-year loan term allows for the longest amortization period, which keeps monthly payments lower since the loan is stretched over the next 30 years. A 30-year loan allows more flexibility and stability to budget for the future.

In the future, if your monthly income increases and your monthly payment remains low, you can use this added discretionary income for other endeavors, such as saving for retirement, a college fund, or a family vacation.

Maximum Purchasing Power

Opting for a loan with lower monthly payments allows for more room in qualification to push your purchase price higher. This can be the advantage you need to win potential bidding wars, buy a bigger home, or move into a pricier neighborhood.

Cons

Higher Interest Rates

30-year fixed-rate loans will have slightly higher interest rates than shorter-term alternatives, such as 15-year fixed-rate loans or variable-rate loans (such as an adjustable-rate mortgage). With the lower monthly payment and stability of a 30-year fixed-rate, buyers are sacrificing these additional interest savings.

Slower Equity Growth

With longer loan terms, it will take you more time to accrue equity in your home. If your overall goal is a fast track to free and clear homeownership, a shorter loan term may be the best choice for you.

Mortgage Insurance – What is it, and when is it required?

Mortgage insurance (MI) is an added protection for the lender. By requiring this additional payment, lenders enable buyers to purchase homes with far less than the 20% down needed (like in the early days of homebuying). Although mortgage insurance seems inconvenient, the option of mortgage insurance has increased home accessibility to millions who cannot afford to save for a 20% down payment. Buyers could have a stable income and a desire to own without substantial savings – mortgage insurance helps in these cases.

Government loans, such as FHA financing, have mandatory mortgage insurance that can be required for the life of the loan. This is composed of an upfront mortgage insurance premium and a monthly mortgage insurance premium. VA loans don’t have mortgage insurance but do include an upfront funding fee similar to the FHA upfront mortgage insurance premium.

Private Mortgage Insurance (PMI)

Private mortgage insurance (PMI) is required for all conventional loans with a down payment of less than 20%. You can opt to pay this monthly (most popular), in a lump sum at closing, or finance the lump sum payment into the loan. The cost for PMI varies depending on your credit score, down payment, and loan term.

Once you accrue 20% equity in your home, you can petition to have this monthly payment removed from your loan, often by ordering an appraisal to confirm the value of your home. Otherwise, mortgage insurance is automatically removed once you accrue 22% equity in your home.

Down Payment Options

With a 30-year fixed-rate loan, homebuyers can take advantage of the most lenient minimum down payment requirements for each financing type listed below:

• Conventional
  • 3% minimum for low balance loans (loan amounts below the 2022 limit of $647,200)
  • 5% minimum for high balance loans (loan amounts in high-cost counties above 2022 limit of $647,200 and below $970,800)
• FHA – 3.5% minimum
• VA – 0% minimum
• Jumbo – 10% minimum – 20% for best-priced options

Is a 30-year fixed-rate mortgage right for you?

There is no one-size-fits-all for mortgage financing. The best way to determine whether a 30-year fixed-rate mortgage makes the most sense for you is to talk to one of our mortgage experts at JVM Lending. Our experts can walk you through monthly payment scenarios, give you current interest rates, and discuss any other questions or concerns you might have.