How a 30 Year Fixed Rate Mortgage Works
30 Year Fixed Rate mortgages are among the most popular home loans available for buying a house or refinancing an existing mortgage. They offer borrowers the security of stable, affordable monthly payments and protection from market changes.
30 Year Fixed Rate Mortgage Overview
A 30 Year Fixed Rate mortgage is a loan featuring an interest rate that stays the same over the life of the loan, as opposed to an ARM mortgage, which has an interest rate that can adjust periodically. A 30 Year Fixed loan allows a borrower to make payments over a 30 year term, and they are among the most popular loan options for borrowers seeking to buy a house or refinance a home loan, since they offer the stability of an unchanged monthly payment, regardless of market fluctuations.
With a 30 Year Fixed Rate mortgage, your payment will be the same every month, (not including other payments such as property taxes, homeowner’s insurance costs, or association fees), so you can plan your finances accordingly and you won't need to worry about your payment going up if the market changes.
You can use our Fixed Rate mortgage calculator to get an idea of what your mortgage payment might be.
30 Year Fixed Mortgage Benefits
Many borrowers choose a 30 Year Fixed loan to buy a house or refinance because of the advantages:
- Affordable Payments: With a 30 year term, you'll enjoy more affordable payments compared to a 15 year fixed rate mortgage potentially allowing you to purchase more house. This could offer you the chance to invest some of these savings in stocks or other real estate which may possibly yield higher returns than the interest you pay on your mortgage.
- Security: Particularly popular with first time home buyers, the security of a fixed rate loan is attractive to many borrowers. Even if current rates go up, yours won't. You'll have consistent monthly principal and interest payments with no surprises, so you can plan your finances accordingly.
- Loan terms are straightforward and easy to understand.
One benefit to keep in mind is that you may be able to deduct the interest paid on your mortgage on your annual income taxes if you itemize your deductions and the home loan is no greater than $750,000. You could even deduct mortgage interest on your state income taxes as well in some states. Please consult a tax or accounting professional before making any decision or taking tax advice.
30 Year Fixed Mortgage Requirements
In order to get a 30 Fixed Rate mortgage, or a 15 Year Fixed, you'll need to go through a few simple steps. If you're shopping for a home, the first thing most borrowers do is get preapproved for a loan.
Having a credit preapproval can:
- Save you time shopping for properties in your price range
- Create credibility with sellers by letting them know you're qualified and serious
- Speed up the closing process and get your loan funded sooner
- Improve your experience in the home buying process
Having good credit is the only means of qualifying for the lowest 30 year fixed mortgage rates. Your FICO credit score will likely be scrutinized—a good credit score is usually between 670 and 739. A credit score of under 620 can make it difficult to qualify for a conventional mortgage. In such cases, an FHA or USDA loan may be a good option.
Having a low ratio of debt to income is also important in finding a low mortgage rate. If the percentage of debt you pay every month relative to your gross income for the month exceeds 43%, it could be very difficult to qualify for a mortgage.
If you're looking to refinance your mortgage with a Fixed Rate loan, you'll want to have proof of income and copies of:
- Homeowner's Insurance: Verify adequate coverage
- Proof of Income: Show past employment and income history
- Asset Information: Bank account statements, 401k, and other investment records
30 Year Fixed Mortgage
One of the most popular loan options, the 30 Year Fixed offers the security of a fixed rate plus an affordable payment. You will always know your monthly mortgage payment and you can budget accordingly.
30 Year Fixed Rate loans offer:
- Even more affordable payments than 15 year fixed loans
- Security of consistent payments
- Protection from inflation
30 Year Mortgage History & Trends
Coming out of the recession of the 1980s, yearly mortgage rates declined in the following decade to under 10%. 30 year fixed mortgage rates were around 6% when the 2008 housing crisis hit. Since the crisis abated, however, rates have been as low as 3.35% in the final quarter of 2012.
Discover today’s mortgage rates!
What are the Benefits of a 30 Year Fixed Rate Mortgage?
Borrowers with a 30 Year Fixed Rate mortgage can rest assured that their monthly home mortgage payments won't increase if the market takes a turn for the worse. This allows borrowers to plan their finances accordingly, while making fixed payments over the course of 30 years.
Who Qualifies for a 30 Year Fixed Rate Mortgage?
The first thing borrowers do when looking for a 30 Year Fixed Rate mortgage is get preapproved for a loan. Additionally, preapproval allows borrowers to:
- Know how much house they can afford.
- Show serious purchasing intent to potential sellers.
- Speed up the home buying process.
Can I Pay My 30-Year Fixed Rate Mortgage Early?
Yes, it is possible to pay off your 30-Year Fixed Rate mortgage early. If your financial situation changes so that this becomes a realistic possibility, consider putting more towards your principal payment each month, or even refinancing under different terms.
Are There Drawbacks to a 30 Year Fixed Mortgage Loan?
There are some features of a 30 Year Fixed mortgage that some borrowers may not find favorable, including higher interest rates and more interest paid over the life of the loan.
Is a 30 Year Fixed Rate Loan Better than a 15 Year Fixed Rate Loan?
Your personal circumstances will determine which loan is better for you. 30 Year Fixed Interest mortgages are popular amongst new homeowners because they have lower monthly payments and allow borrowers to plan financially well into the future. 15 Year Fixed Interest loans have lower interest rates but higher monthly payments, pricing out some potential borrowers.
Visit our mortgage calculator to see how each option affects your financial plans.