Buying a home brings a lot of excitement, but the one thing that can confuse you in this process is which mortgage to choose for buying a home. While there are a lot of options available in the market, each home loan program has its pros and cons.
The most popular home loan program is fixed rate mortgage. A fixed rate mortgage is a home loan program where mortgage interest rate remains same for the whole term of the loan. So, for a 30 year fixed rate mortgage, you have to pay the same interest rate for 30 years. Let’s discuss what a 30 year fixed rate mortgage holds in for you.
What are the benefits of getting a 30 Year Fixed Rate Mortgage?
Fixed payment – If you have taken out a fixed rate mortgage, you know what amount goes from your pocket every month. In case of adjustable rate mortgage, after the initial rate period is over, monthly payment either increases or decreases, depending on the mortgage interest rate.
Home Equity – Contrary to other home loan programs like interest only loans, fixed rate mortgage lets you build home equity. No wonder, this makes fixed rate mortgage the most preferred mortgage in the U.S.
Monthly budget – At the beginning of every month, you know what amount of money will go as monthly payment towards fixed rate mortgage. This helps you plan your monthly budget accordingly.
Disadvantages of 30 Year Fixed Rate Mortgage
30 years is a very long time and before you make up your mind for a 30 year fixed rate home loan program, consider the cons of 30 year fixed rate mortgage.
You pay more mortgage interest rate for a 30 year fixed rate mortgage. Plus, the mortgage interest rates are higher compared to adjustable rate mortgage. If the rates drop, you won’t benefit from it because with a 30 year fixed rate mortgage, you are stuck with the rate you locked in. And this situation can only change when you decide to refinance your mortgage.
Though 30 year fixed rate mortgage is a popular mortgage, it’s not the best option for everyone. Before you lock in your rates for a 30 year fixed rate mortgage, consider the terms and rates and shop around to get the best deal.
Moreover, home owners who do not wish to stay in the house for long should not get a 30 year fixed rate mortgage; otherwise they will feel trapped with this type of home loan program. And the same goes for home owners who intend to sell the house or refinance their mortgage soon.