Your Mortgage: Pros and cons of a 30-year fixed-rate mortgage

Charity Ohlund from Fountain Mortgage knows a thing or two about mortgages.

By Charity Ohlund

What is a 30-year fixed-rate mortgage?

A 30-year fixed-rate mortgage has the same interest rate for the duration of the loan. The principal and interest portion of your monthly payment won’t be impacted even if the market changes. But keep in mind that a monthly mortgage payment most often includes the principal, interest rate, homeowners insurance premium, and property taxes. In a 30-year fixed rate mortgage, the first two will never change, but the latter two can (and often will) go up over the years.

PROS of a 30-year fixed-rate mortgage

There are three key benefits to 30-year fixed mortgages:

  1. Lower monthly payments:
    With 30 years to repay your loan, your monthly payments will be more affordable than they would be with a shorter loan term. The longer loan term can make the cost of homeownership more manageable.
  2. Predictable monthly payments:
    Because the mortgage interest rate never changes, your principal and interest payments never change, either. For the entire 30-year loan term, you’ll know exactly how much you’ll have to pay each month, making it easier to plan and budget. But again, keep in mind that the portion of your mortgage payment that covers property taxes and insurance can go up.
  3. Able to get a more expensive house:
    A lower payment with a 30-year mortgage could allow you to afford a more expensive home. Just make sure not to borrow more than you can truly afford.
    Find out how much you can afford by visiting with our team.

CONS of a 30-year fixed-rate mortgage

While a 30-year fixed mortgage is popular, there are some drawbacks to keep in mind:

  1. Higher interest rate:
    By giving you 30 years to repay your home loan, lenders are taking a larger risk. To offset that risk, lenders usually charge you a higher interest rate on 30-year fixed mortgages compared to loans with shorter terms.
  2. More total paid interest:
    Having a 30-year mortgage makes your monthly payments more affordable. However, the longer loan term means more interest will accrue on your loan, causing you to repay far more than you originally borrowed.
  3. More time to build equity:
    Because of the lower monthly payment and long loan term, much of your payment will go toward the interest that accrues each month on your mortgage rather than the principal. With a 30-year mortgage, it will take you longer to build equity in your home.

If you are currently in a 30-year fixed mortgage, it may be a great time to refinance to a 15-year term. You’ll save thousands in interest and build equity faster. Plus, home values are high and interest rates are low, making it an ideal time to take cash out for home improvement projects, college tuition, debt repayment, or simple to pad your emergency fund.

Schedule a 15-minute information call with our team at Fountain Mortgage to discuss all of your options. Or stop by the Fountain Mortgage Café at our new headquarters office in the heart of Prairie Village at the corner of 75th and Mission Road.