For financing real estate, the 30 year fixed-rate mortgage still remains the most popular home loan for borrowers. The majority of borrowers today take out 30 year fixed-rate mortgages because of the flexibility and comfort of a long-term fixed rate.
30 year fixed-rate mortgages today contain no prepayment penalties unlike their counterparts from a few years ago. The 30 year fixed-rate mortgage allows a borrower to have the lowest monthly payment, many take comfort in watching their principal mortgage balance go down incrementally every month.
The 30 year fixed rate mortgage is a conservative home loan program for borrowers seeking mortgage financing.
Let’s compare a 30 year fixed-rate mortgage to a 15 year fixed-rate mortgage.
Assumptions: Purchase price $300,000 with 20% down using an interest rate of 4.25%.
The 30 year fixed-rate mortgage scenario
= $240,000 financed loan amount
This in turn gives us a principal and interest payment of $1181. This is because the payment is amortized over a 360 month term.
The 15 year fixed rate mortgage scenario
= $240,000 financed loan amount
You can even check the math with an easy online mortgage payment calculator.
This in turn gives us a principal and interest payment of $2054. This payment is computed on a 180 month term which subsequently increases the payment because you’re paying the loan down on accelerated amortization schedule, thus paying off the principle mortgage balance faster in exchange for a higher monthly payment.
If you are seeking a flexible home loan, give consideration to the 30 year fixed rate mortgage.
The 30 year fixed rate mortgage in the above scenario could be taken how in order to manage cash flow more proactively on a monthly basis. By having a 30 year fixed rate mortgage as your home loan, you can set up the monthly payment however you wish.
You can elect to set up a biweekly mortgage payment, or make whatever payment you want beyond that payment that is due. For this reason, the 30 year fixed rate mortgage remains fsavorable giving you flexibility to make additional principal prepayments. If cash becomes tight, you can always just make your 30 year principal and interest payment and know that the end of 30 years, your mortgage loan will be paid off in full.
Reducing the house payments…
To achieve the lowest housing loan payment, you need to do one or more of the following with your mortgage payment:
- Reduce the interest rate
- Increase the term of the loan
- Purchase less house/lower your purchase price
- Increase your down payment
- Switch mortgage loan programs
These are the tried and true ways to have your cake and eat it too.
Other things to consider during mortgage loan qualifying with a 30 year fixed rate mortgage as your preferred home loan program are … drum roll please “revolving monthly debts”.
If you take out a 30 year fixed-rate mortgage and you have other monthly debts you will have an easier time with mortgage loan qualifying than you would if you took out a 15 year fixed-rate mortgage or even a 20 year fixed-rate mortgage. This is because the mortgage lender when factoring in your ability to qualify for the loan, must take into consideration all the other monthly debts including credit cards, student loans, alimony etc. into your debt to income ratio. The higher your debt to income ratio is, the more difficult it is for you to qualify for the mortgage loan and the more weight is then placed on other factors of your qualifying ability such as your credit score.
The 30 Year Fixed Rate Mortgage allows you to qualify more easily.
If you would like to learn more about the 30 year fixed-rate mortgage and how that home loan program can help you purchase or refinance more easily contact us. You can also even receive a complimentary mortgage rate quote by filling out the simple form. There is no obligation.
The 30 year fixed rate mortgage still remains the most popular home loan for borrowers today.