The 30-Year Fixed-Rate Refinance

The 30-year refinance mortgage is the most popular choice in mortgage refinance loans. Like the reliable partner in a happy marriage, the 30-year refinance is stable and constant -- no unsettling changes in the interest rate or payment make budgeting easier and the 30-year amortization keeps payments manageable.

What Is It?

The 30-year fixed rate refinance is amortized (repaid -- amortize literally means "kill off") over a 30-year term. Part of your monthly remittance covers the interest for the previous month, and the rest reduces your balance. As the balance slowly drops, there is less interest due each month and more of your payment goes toward reducing the principal – until it equals zero.

“Fixed rate” means that once you close on your refinance, your mortgage rate (and your required principal and interest payment) can’t be changed.

What’s Great About It?

There’s a reason that 30-year fixed rate refinances are so well-liked. The fixed rate creates a constant payment, which simplifies budgeting. Knowing that the refinance rate can’t increase even during inflationary times is comforting to many borrowers.

The nice, long 30-year term keeps the refinance payment lower and makes your home more affordable. Before the Great Depression, most American mortgages came with terms as short as five years and required down payments of up to 50 percent! During this time, fewer than half of all American adults owned homes.

What’s Not Great About It?

The main drawback of the 30-year refinance loan is also its chief advantage. Your rate won’t increase over time, but it won’t decrease, either. People who bought or refinanced homes in early 2011 paid on average just over five percent, and thought they were getting a pretty good deal. Two years later, when mortgage rates had dipped into the low three percent range, they were less satisfied. The only way to lower the interest rate when you refinance with a fixed home loan is to refinance again.

In addition, that 30-year term that creates such a nice low payment has its downside. You’ll pay a lot more interest over the life of your refinance. Here’s a table showing the total interest on a $100,000 loan if refinanced for 5, 10, 15, 20, 25 and 30 years.

Years Financed 5 10 15 20 25 30
Monthly Payment $1,841.65 $1,012.45 $739.69 $605.98 $527.84 $477.42
Total Interest Paid $10,499 $21,494 $33,144 $45,435 $58,351 $71,870

Who Is it For?

The 30-year fixed rate refinance is the right home loan for many folks. If you want to be sure that your mortgage will not change for its entire term, no matter what happens to the economy, it’s a good loan. Others who can benefit from a 30-year fixed rate refinance include:

  • Investors (as rents increase over time, the mortgage payment will not)
  • People who plan to sell (government refinances are assumable, which can help homeowners sell the property later)
  • People with fixed incomes
  • Homeowners who need help with budgeting
  • Those who wish to stabilize their payments by refinancing out of adjustable mortgages

How Do You Get One?

Interestingly, the US and Denmark are the only countries that make 30-year fixed-rate mortgages widely available. In most other countries, mortgage rates are fixed only for limited times -- five years is common. So if you want this popular loan, be grateful that you live in the USA.

Qualifying for a 30-year fixed rate refinance is easier than qualifying for products like adjustable mortgages. That's because fixed-rate loans are considered safer. These mortgages are sold and backed by a wide variety of providers and qualifying varies between programs. The chart below shows a range of requirements for 30-year refinances – conventional, community and government products.

Equity Needed Debt-to-income Ratio Minimum FICO Loan Category
5-20% 36% 620-700 Conventional Loans
3% 41% 600-660 Community Loans
0-10% 45% 500-580 Government Loans
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