The traditional 30-year fixed-rate mortgage has a constant interest rate and monthly payments that never change. A 30-year fixed-rate loan may be a good option if you plan on staying in your home for years to come.

Stability

You’ll be able to lock in the interest rate on your mortgage for the entire 30-year term. This gives you a degree of predictability you won’t have with an adjustable-rate mortgage (ARM).

Smaller monthly payments

With a 30-year fixed, you’re able to spread the repayment of your loan over a longer period of time. So, your payment due each month is smaller.

Qualification for a larger mortgage

With a 30-year fixed, your monthly payment is a smaller percent of your total monthly income. This ratio is evaluated when determining your qualification for a mortgage. With a lower ratio, you may qualify for a larger mortgage.

Flexibility

The smaller payment gives you greater financial flexibility. Do you need to pay down higher-cost debt? Do you want to build a bigger safety net? A 30-year fixed mortgage gives you the flexibility to choose. You can make a larger payment anytime without incurring any penalties.

When interest rates are low, fixed-rate loans are generally not that much more expensive than adjustable-rate mortgages and may be a better deal in the long run, because you can lock in the rate for the life of your loan.

What is a 30 year fixed rate mortage?

A 30-year fixed rate mortgage is the most common mortgage loan option. It has a repayment period of 30 years. The interest rate on a 30-year fixed mortgage does not change throughout the life of the loan.

What is the disadvantage of a 30-year fixed rate mortage?

The biggest disadvantage of a 30-year fixed rate mortgage is that it’s more expensive over time than a shorter term loan. Let’s compare it to a 15-year fixed rate mortgage as an example. The 30-year fixed mortgage is more expensive not only because the interest rate on a 30-year fixed loan is higher than a 15-year fixed loan, but also because you’ll pay more interest over time since you’re borrowing the money for twice as long. Additionally, spreading the principal payments over 30 years means you’ll build equity at a slower pace than with a shorter term loan.

What is the advantage of a 30-year fixed rate mortgage?

The 30-year fixed rate mortgage is by far the most popular loan type, and for good reason. The pros of a 30-year fixed mortgage include a predictable, steady monthly payment that never changes since the interest rate never changes. This loan type also has a relatively low monthly payment, compared to shorter term loans. For example, on a 30-year mortgage of $300,000 with a 20% down payment and an interest rate of 3.75%, the monthly payment would be about $1,111 (not including taxes and insurance. But for a 15-year fixed loan, the payment would be about $2,062. And because the 30-year fixed monthly payment amount is lower than a shorter term loan, it can also help home shoppers qualify for more home.

FHA Loan Programs

Adjustable-Rate Mortgage

FHA’s adjustable-rate mortgage (ARM) insures home purchases or refinances with rates that can change after the initial fixed-rate period. Depending on market fluctuations after this initial fixed-rate period, your monthly payments could change due to rates increasing or decreasing. An ARM could be the right choice for you if you plan on staying in your home for just a few years, you’re expecting a future pay increase, or the current interest rate on a fixed-rate mortgage is too high.

Fixed-Rate Mortgage

Fixed-rate mortgages protect you against rising rates since the interest rate remains the same for the entire term of the loan. With FHA loans, you can select a 30-, 20- or 15-year term. The main difference is the lower term options have higher monthly payments, which also means you are building home equity faster. Keep in mind you can use equity as a down payment for your next home or a future cash-out refinance. If you plan on staying in your home for a longer time frame, a fixed-rate mortgage could be the right solution for you.

Streamlined Refinance

If you currently have an FHA mortgage, we may be able to help you reduce your interest rate and lower your monthly mortgage payments with an FHA streamlined refinance. Plus, a streamlined refinance requires limited borrower credit documentation and underwriting for an even easier process. This may be the right solution if you want to convert your ARM to a fixed-rate loan.