One of the most common ways to buy a house today is with a 30 year mortgage. Mortgages are available for almost any length of time you want, but there are some that are more popular than others, and just about any lender will offer a 30-year mortgage. Just recently, the interest rates on 30-year fixed rate mortgages have reached an all-time low since 1971, according to Bloomberg.com.
In a day when the economy is rather unstable, a fixed rate 30 year mortgage is probably your best deal. This mortgage, or home loan, gives you the benefit of having a single fixed rate throughout the life of the loan. No matter what happens to the economy, the home buyer will always have to pay the same amount each month. Payments are always going to be same for the full 30 year period, although you often can pay more than the minimum when you want to. The possible exception to this, says Bankrate, would be if your homeowner’s insurance or property taxes change – if they are tied into your mortgage.
A fixed rate 30 year mortgage is also going to be fully amortized at the end of the 30 year period. This means that it will be paid for in full at the end of the mortgage term, and no further money will be owed on the house as long as all payments have been made as scheduled.
Even though the payments remain the same during the lifetime of the mortgage, the allocation of the money paid changes. As you start to pay off the loan, nearly all of the money you pay will go toward interest, says Investopedia. This percentage changes slightly each year, and more will go toward paying off the principal with each new year. Special amortization tables are included in all mortgage documents, and these charts will show how much money goes toward paying the principal and interest each year.
One important thing that you want to watch out for as you get a mortgage is to be sure that you can pay it off early without any kind of penalty. Some lenders put clauses in their documents saying that there is a penalty fee added if you pay it off before the 30 years are ended. Since many lenders do not have this in their documents, you want to be sure to find one that does not include it.
A 30-year mortgage enables homebuyers – both first time and repeat – an opportunity to keep their monthly payments lower than they would on a shorter term mortgage. While it is harder to get a mortgage today, they can still be obtained. Appraisal issues can get in the way, and having a good credit score will also certainly help, says Les Christie at Money.CNN.com.
A disadvantage of a fixed rate mortgage is that if mortgage interest rates drop, that there is no
way to take advantage of the better rates. All you could do would be to refinance and possibly get an adjustable rate mortgage. A fixed rate 30 year mortgage is also typically higher than an adjustable rate mortgage because it has to take into account the probability that interest rates will rise within the next 30 years.