30 year mortgage rates are higher than rates for shorter term fixed rate mortgages or initial rates for adjustable rate mortgages. Benefits of 30 year mortgage rates include:
- Stable principal and interest (P & I) payments over the life of the loan make budgeting easier.
- A 30-year loan term provides lower monthly payments than a shorter term mortgage. This can help first-time and moderate-income home buyers qualify for mortgages.
- Fixed rate mortgages are attractive to buyers in cases where home buyers can assume the seller's mortgage.
- Fixed rate mortgages are fully amortized; they have no exotic features like negative amortization or interest-only payments. This helps borrowers build home equity faster.
- 30 year mortgages can be paid off early if the mortgage carries no pre-payment penalty. Homeowners can pay less interest by pre-paying the mortgage principal, but aren't required to make higher payments every month.
30 year fixed mortgage rates are a low-risk choice for home buyers who want predictable monthly payments and the option of making lower payments over a longer time. While 30 year mortgage rates don't change, it's important for prospective mortgage borrowers to compare all terms and conditions for each mortgage being considered. Pre-payment clauses and penalty fees are examples of mortgage features that can vary.
30 Year Mortgage vs 15 Year Mortgage
Home buyers select mortgages based on what works best for their circumstances. Before choosing a loan, it makes sense to compare 15 and 30 year fixed mortgages. Here's a sample comparison for a $300,000 mortgage:
30 year fixed rate mortgage
- Mortgage rate: 4.00 percent
- P&I payment $1,432
- Interest over the life of the loan: $215,609
15 year fixed rate mortgage
- Mortgage rate: 3.19 percent
- P&I payment $2,099
- Interest over the life of the loan: $77,868
People who choose 15-year loans save in two ways -- first, the shorter term means paying a lot less interest because you're borrowing for half as long. Second, interest rates for loans with shorter terms are lower. Rates for 15-year loans run about one percent lower than those of 30 year loans.
While it's possible to save approximately $137,740 in interest with a 15 year loan in this example, it's important to note that most mortgages are paid off through refinancing or home sales well before their loan terms expire. Investopedia notes that the average life of a 30 year mortgage is about seven years. Given this situation, the lower payment for the 30 year fixed rate mortgage may be more beneficial to most homeowners than potential interest savings.
Things to Know
Benefits of a 30 year fixed rate mortgage can vary according to individual circumstances. For example, borrowers wanting to retire mortgage-free and who can afford the higher payments for a shorter mortgage term may prefer a 15 year mortgage.
Although P & I payments for fixed rate mortgages don't change, monthly mortgage payments can change if they include amounts collected for taxes and insurance. Lenders typically adjust mortgage payments according to changes in amounts charged for taxes and insurance.
Discussing mortgage options with a financial advisor can help with choosing a mortgage that meets specific financial needs and goals.