What is a 30-Year Fixed-Rate Mortgage?
If you want to buy a home, but have concerns about your payments changing monthly, a 30-year Fixed-Rate mortgage might be the right choice for you. 30-year Fixed-Rate mortgages are among the most popular home loans available. They offer borrowers the security of stable, affordable monthly payments and protection from market changes. They can be used by borrowers to finance a home or to refinance an existing mortgage.
30-Year Fixed-Rate Mortgage Overview
A mortgage rate is the interest rate you pay on your mortgage loan. Mortgage rates change daily and are based on fluctuations in the market. A 30-year Fixed-Rate mortgage is a loan featuring an interest rate that stays the same over the life of the loan. This is different from an Adjustable-Rate mortgage (ARM), which has an interest rate that can periodically adjust based on the terms of the loan.
A 30-year Fixed loan allows a borrower to make payments over a 30-year term. They are among the most popular loan options for borrowers seeking to buy a house or refinance a home loan. This is because they offer the stability of an unchanged monthly payment, regardless of changes in the market.
With a 30-year Fixed-Rate mortgage, your payment will be the same every month. This fixed payment does not include other payments like property taxes, homeowners insurance, or homeowner association fees. Having a fixed-rate mortgage gives you more stability in your budget so you can plan your finances accordingly. You also don’t have to worry about your payment going up if the housing market changes.
30-Year Fixed Mortgage Requirements
Those applying for a 30-year or 15-year fixed mortgage will first be required to be pre-approved.
Getting credit preapproval allows you to:
- Save time by only looking for properties that fall in your price range
- Build credibility with sellers by demonstrating you are serious about buying and are qualified to do so
- Get faster funding for your loan by accelerating the closing process
- Have a better home buying experience
Here are the other general requirements to qualify for a 30-year mortgage after you get preapproved.
- A minimum credit score of 580 to 620: Having a good credit score is the main way borrowers are able to qualify for the lowest mortgage rates. Lenders generally consider a good credit score to be between 670 and 739. A credit score of 620 is the minimum required to qualify for a standard Conventional loan. Some lenders may accept as low a score as 500 for other 30-year mortgages such as FHA.
- A maximum debt-to-income ratio of 50%: Having a low DTI is also important in finding low mortgage rates. If your DTI exceeds 43%, it could be difficult to qualify for a mortgage.
- The ability to pay at least a 3% down payment: The exact amount of down payment required will depend on the loan type and the terms and conditions of your individual loan.
Each mortgage lender has their own individual qualification standards when issuing a loan. Make sure to check with your lender to find out the specific requirements of your loan.
If you're looking to refinance your mortgage with a Fixed-Rate loan you will need these things in addition to the previous requirements.
- Proof of Income: Show evidence of steady and consistent income – this can include W2s, tax statements, or check stubs
- Asset Information: Bank account statements, 401k, and other investment records to show any additional income and assets
- Homeowners Insurance: Be able to prove to your lender that you have the necessary coverage for your property
In addition to general requirements, your lender will also have their own individual set of qualifications.
30-Year Fixed Mortgage Benefits
There are several significant benefits to choosing a 30-year Fixed mortgage.
- Affordable Payments: With a 30-year term, you'll enjoy more affordable payments compared to a 15-year Fixed-Rate mortgage.
- Extra money to use to fund other things: Having more affordable monthly payments can give you more money to use for other goals. Use the money you save for other life expenses, investing in stocks, or buying other pieces of real estate.
- Security: The security of a fixed-rate loan is attractive to many borrowers. The stability and predictability of payments makes them particularly beneficial to first-time homebuyers. Even if current rates go up, yours won't. You'll have consistent monthly principal and interest payments with no surprises, so you can calculate and plan your finances accordingly.
- Easier to save money: With the stability of a predictable monthly mortgage payment, budgeting and saving money can be a much simpler process.
- Qualify for a larger mortgage: Having mortgage payments spread out across a longer timeframe may allow you to qualify for a larger mortgage. This can let you buy a more expensive house than you might be able to with a 15-year mortgage.
- Flexibility: Just because you choose a 30-year mortgage doesn't mean you have to spend three decades paying it off, though. Selecting this loan means you have the leeway to make a single, lower monthly payment, but you can also send your mortgage servicer (the company that collects your mortgage payments) more money than you owe each month to pay down your principal faster and build less interest. This option gives you the security of knowing you won't have to make extremely high monthly payments, but it also gives you the flexibility to make higher payments if you want to.
- Loan terms are straightforward: This makes them easier to understand.
- Interest is potentially tax deductible: You may be able to deduct the interest paid on your mortgage on your annual income taxes. There are requirements you must meet to be able to do this. If you itemize your deductions and meet the loan amount requirement, you may be able to deduct the interest on your federal and state income taxes. Make sure to consult a tax or accounting professional before making any decisions or taking tax advice.
Types of 30-Year Fixed-Rate Mortgages
Conventional 30-Year Fixed-Rate Mortgage: A Conventional loan is not insured or guaranteed by the government. This means it has fewer restrictions and allows lenders some flexibility in the terms and conditions they set for their borrowers. Conventional loans typically require a down payment of as little as 3% of the total cost of the home.
Lenders can offer flexible term lengths on Conventional loans, ranging from 10 to 30 years. Since lenders are at a higher risk with a Conventional loan, the borrower may be required to secure private mortgage insurance (PMI) if they have a down payment of less than 20%.
PMI will no longer be required once a borrower reaches 20% equity in the home.
FHA 30-Year Fixed-Rate Mortgage: An FHA loan is a mortgage insured by the Federal Housing Administration. The FHA is a federal government agency that is part of the Department of Housing and Urban Development. FHA loans are backed by the federal government and are often a valuable option for homebuyers who do not qualify for a Conventional loan.
FHA loan requirements vary depending on individual loan types but require as little as 3.5% down payment on a home purchase. FHA loans may be a valuable option for first-time homebuyers, buyers with a lower credit score, or a challenging credit history.
One thing to consider: FHA loans require both an upfront payment for mortgage insurance and separate monthly mortgage insurance payments for as long as the life of the loan, depending on the loan-to-value ratio.
VA 30-Year Fixed-Rate Mortgage: A VA loan is a mortgage guaranteed by the Department of Veterans Affairs. VA loans are exclusively for active-duty military personnel, veteran servicemembers, and certain military spouses. VA loans carry significant benefits for those that qualify, including lower interest rates, no required down payment, and no monthly mortgage insurance premiums.
For more information and to get answers to your questions contact one of the loan officers at New American Funding. They will help you figure out which loan is right for you.
Disadvantages of a 30-Year Fixed-Rate Mortgage
There are several disadvantages to a 30-year Fixed-Rate mortgage when it is compared to a shorter-term mortgage.
- Interest rates are generally higher than they are on a 15-year mortgage. Because 15-year mortgages take half as long to pay off, their interest rates are generally much lower than 30-year mortgages. Lenders risk more with a 30-year mortgage because the repayment period is longer, so the rates they charge higher rates to mitigate that risk.
- It takes longer to remove the burden of monthly mortgage payments from your budget. While the monthly payments with a 30-year mortgage are smaller than a 15-year, it will take longer to pay off the whole loan.
- More interest builds up over time. Since the duration of the loan is twice as long as a 15-year mortgage, it will accrue more interest.
- It will take longer to build equity in your home. Since payments on a 30-year mortgage are smaller than other, short-term mortgages, it will take longer for a borrower to build up equity in their home.
Many homebuyers still prefer 30-year Fixed-Rate mortgages since they give them more time, flexibility, and stability than shorter-term mortgages.
30-Year Fixed Mortgage Rate
A mortgage rate is the interest rate you pay on your mortgage loan. Mortgage rates change daily and are based on fluctuations in the market, but they're lower than they have been for most of the last 40 years. Mortgage rates have changed significantly over the years. From the 1970s to 1981 mortgage rates increased to as high as 18%. The Federal Reserve then raised the Federal Funds rate to help manage inflation. From the 1980s until 2022, rates declined steadily.
Visit the mortgage rate tracker from New American Funding to learn what the current 30-year Fixed mortgage rate is.
How Often Do 30-Year Mortgage Rates Change?
30-year mortgage rates change often. Several factors can affect offered mortgage rates. They respond to changes in the housing market as well as changes to the Federal Funds rate. The Federal Funds rate is the interest rate that banks and credit unions use to lend money to each other. It is put into place by the Federal Open Market Committee (FOMC). The FOMC is under the governance of the United States Federal Reserve. It adjusts the Federal Funds rate based on current or forecasted economic circumstances. This can be in response to national inflation or global events.
30 Year Mortgage FAQs
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 makes it easier for borrowers estimate their average monthly costs and budget accordingly since they will continue to make the same 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 can spend on their house.
- Show serious purchasing intent to potential sellers.
- Speed up the homebuying 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 allows it, consider putting more towards your principal payment each month. You may also want to consider 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. These include 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 right for you. The main functional difference in a 30-year Fixed and a 15-year Fixed is the duration. The length of the loan however, can in turn, affect things like the affordability of it. 30-year Fixed-Rate mortgages are popular with new homeowners because they have lower monthly payments and make it simpler for borrowers to plan their finances.
15-year Fixed-Rate loans can help you build equity in your home faster and have lower interest rates. However, the monthly payments are much higher than with a 30-year, so it requires a higher degree of financial stability. This may limit the availability of the loan to some borrowers. The high monthly payments can also make it more difficult for borrowers to save money while they are paying off their loan.