The 30-year fixed rate mortgage is the most popular mortgage in the US, for a lot of reasons. Mainly, borrowers appreciate the fact that its rate does not change during its term, which makes budgeting easier. Even if inflation becomes a concern and mortgage rates hit the roof, folks with fixed-rate mortgages are safe from increases. Here are the main advantages of the 30-year home loan:
- Rate is unchanging during the life of the loan
- 30 year amortization keeps payments affordable
- Today's low interest rates are locked in for decades
In addition, government loans are assumable in many cases. Having a low rate locked in for a long time can be a major asset if you put your property on the market.
Types of 30 Year Fixed Mortgages
Because the 30-year mortgage is so popular, it comes in a wide variety of programs. You may want to shop for:
- FHA 30-year mortgages
- VA 30-year home loans
- Jumbo 30 year mortgage rates
- Conforming (Fannie Mae and Freddie Mac) 30-year fixed home loans
- Portfolio 30 year mortgages
These fixed loans meet different needs. FHA and VA products are government-backed and allow borrowers to make very low down payments. Jumbo loans help people buy or refinance more expensive homes with larger loan amounts. Jumbo loans are also called "non-conforming," because their loan amounts don't conform to Fannie and Freddie guidelines.
Conforming mortgages are the most common -- these loans are made in accordance with guidelines established by Fannie Mae and Freddie Mac, two government-sponsored entities that package up home loans and sell them to investors as mortgage-backed securities (MBS). And portfolio loans are not publicly traded -- instead, lenders keep them on their own books, which means they can make up their own guidelines. Not all portfolio loans are jumbo loans, but all jumbo loans are portfolio loans.
The Price of Safety
With all the 30-year loans out there, borrowers should be able to find one to suit them. However, the charms of the 30-year mortgage come at a price -- rates for 30-year fixed mortgages are higher than rates of home loans fixed for shorter terms. For example, here's a look at interest rates for different programs in June 2014 (rates were found on LendingTree's Loan Explorer):
As you can see, mortgage rates for 30-year fixed loan are substantially higher than those which are fixed for 15 or five years.
In addition, if interest rates drop, the 30-year loan can be a burden because the only way to get the lower rate is to refinance. Borrowers with adjustable mortgages, on the other hand, can just wait until their next adjustment to automatically get a lower rate.
If you choose a 30-year mortgage, make the choice with open eyes. Know and weigh the costs of different options, using mortgage calculators or picking the brains of loan officers and mortgage brokers. Here's how you might compare options for a $200,000 home loan if you plan to keep the property for five years.
While 30-year fixed rate mortgages have higher interest rates, they could be the best choice for people who plan to keep their home for a long time. That is especially true when interest rates are at or near historical lows, and are far more likely to increase over time than decrease.
30 Year Fixed Mortgage: An American Original
It might surprise you to find out that 30-year fixed mortgages are almost unique to the US. Denmark is the only other country in which long-term fixed home loans are commonly available. Most other countries have loans with shorter terms or "roll-over" features, which require borrowers to regularly (every five or ten years) renew them at market interest rates.
The fact that the government backs so many of these loans -- either directly insuring them through FHA or the VA or supporting them via Freddie Mac and Fannie Mae -- keeps 30 year mortgage rates lower than they would otherwise be.
How to Compare 30 Year Mortgage Rates
When shopping for a 30-year fixed mortgage, it pays to get several quotes from competing mortgage companies. Rates typically vary between lenders by about .25 percent for conforming home loans, while jumbo 30 year fixed rates can vary by twice as much (this is because jumbo programs are lender-specific, and because there are fewer of them).
Make sure every lender gets the same information from you. They can't provide meaningful quotes without knowing your credit score, loan amount, equity or down payment, property type and property use. If you plan to have your 30-year mortgage for many years, it's even more important to shop, compare and get your best deal, because you're going to be living with it for a long time.