30 Year Fixed Rate Mortgage - A mortgage in which the interest rate remains the same for the life of the loan. Payments are amortized for 30 years. In other words, payment is calculated in such a way that the borrower makes equal monthly payments and pays off the home loan in 30 years.
With rising interest rates looming in the horizon, many home buyers are now seeking the payment stability the 30 Years Fixed Rate Mortgages (FRM) offer. The 30-Year Fixed has again become a popularly demanded loan.
While most borrowers feel that a thirty year fixed mortgage is the best option, it is not always the case. The average homeowner lives in their home for 5-7 years and may be better off with a mortgage that is fixed for 5 to 7 years and adjustable afterward. This gives the stability of a fixed rate mortgage with the lower rates that are available with an ARM.
30 year fixed rate mortgage has historically been the most popular loan product. However since most people move or refinance well before 30 years it may make sense to consider a loan with a lower payment. You are paying to have the rate fixed for 30 years and most people do not need the protection for that long.
In the investment world, the longer the capital is committed for, the higher the return. This is true with corporate bonds, T-bills, bank certificates of deposit, etc. This is also true with mortgage loans. Although the 30 Year Fixed Rate Mortgage has payments lower than that of the 15 Year Fixed, the 30 Years Fixed interest rates are often one half percent higher than that of 15-Year Fixed Rate Mortgages.
Refinancing into a 30 year fixed mortgage does not always mean higher payments. 30 year fixed rate mortgages are available with interest only and cash flow (deferred interest) options which provide borrowers with the flexibility to pay more or less as needed.
There are rare occasions that the 30 year fixed rate mortgage will have a better rate than a 5 or 7 year ARM.
The 30 year fixed rate mortgage is probably still the most popular mortgage option. When deciding between mortgage programs, you need to consider different variables such as the length of time you will be in the home. Sometimes you may be better off with an adjustable rate mortgage (ARM), if you only see yourself being in the home for a few years.
A 30 year mortgage is the most common because many people can not afford to go to a lower term. Also, a 30 year mortgage comes highly recommended for the tax benefits it provides along with a low monthly payment. Remember, it is always better to have the cheaper monthly payment that you can afford that gives you a little flexibility each month, and then you can always pay extra when it is convenient so you can pay your loan off quicker.
While the most popular mortgage, before going with a 30 year fixed, consider how long you plan to be in the home. If not more than 5 years or so, take a look at what rates you can get on a 5/1 ARM and compare the two.
A hybrid of sorts to the standard thirty year fixed, is the thirty year fixed, with an Interest Only payment option. For the first ten years of this loan, the borrower has the option to make an interest only option, which offers a lower monthly payment. The interest rate on this loan does not change for the entire thirty years term.
If you plan on staying in your home for the rest of your life, a 30 year mortgage may be your best option. While the monthly payment may not be as low as with an ARM, you have the security of knowing you will never have to refinance and worry about being stuck with a higher monthly payment down the road.
You can always control your 30 year mortgage with a LOC and thereby reduce your mortgage term substantially. A 30 year mortgage with a loan fixed rate is one of the most flexible mortgage plans available today.
What Other Options Besides A 30 Year Fixed? - Many first time homebuyers are under the assumption that the only and best program out there is a 30 year fixed rate mortgage.
Borrowers choose the 30 Year Mortgage because they want to pay down the principle. You have to consider that at the beginning of the loan, the payment is predominantly paying down the interest. Its not until the end of the loan where the majority of the monthly payment is being applied to principle. Have your mortgage consultant explain how the hybrid option arm can quickly build equity in your home for the first 5 years of the loan.
In some case a long term 30 year mortgage will make sense. However by opting for a shorter term arm, they may be able to save thousands on the interest of the loan.
Mortgages are no different than many of the other facets of daily life. Feel free to ask questions! That's what a mortgage professional is there for. "What are my options?" is a fantastic question to ask. 30 year fixed rates are looked at as the number one option, but who knows? Perhaps a shorter term fixed rate fits your needs. Maybe an option arm with different payment choices each month makes sense for you. There are no stupid questions when it comes to the biggest investment of your life.
Borrowers who can afford higher payments and want to pay off their mortgage faster should consider a 15 year fixed mortgage. Borrowers who intend to keep the mortgage for a shorter time frame and want a lower interest rate should consider a hybrid adjustable rate mortgage in which the interest rate is fixed for a shorter period (3 years, 5 years, 7 years, 10 years). Borrowers who want lower monthly payments may consider an interest only loan, where only the interest accrued each month is paid. Option ARMs give borrowers the lowest monthly payments, but may result in negative amortization, where the loan balance grows each month.
One option to a 30 year fixed mortgage is the 15 year fixed. If you are able to make higher payments each month you could pay off your mortgage in half the time. One alternative to this would be to put the extra money into an interest bearing account. Within 15 years you would have enough money to payoff the 30 year with an additional $25,000 from added tax savings.
Very often, when a homeowner is not plannig on staying in their home for more than a few years, it makes more sense to take an ARM or Adjustable Rate Mortgage.
There are many different ARM programs, the most common of which are the 2 year, 3 year, and 5 year ARMS.
The rate is not adjustable from day one, it is fixed for a pre-determined period (2 years for the 2 year ARM, 3 for the 3 year etc...)
The rates on these ARMS are often lower than they would be on the fixed rate, and it could mean thousands of dollars saved by choosing to go with the "ARM".
Contact Home Jones at 415-617-5448 for more information on what loan program will best fit you and your financial needs.
One of the most popular options for homeowners across the country is the minimum payment mortgage, available in both fixed and adjustable varieties. By allowing you to pay even less than the interest due each month, you can borrow $500,000 for as little as $1,264.00 per month, and you can pick and choose when and how much you pay to cover total interest or make payments directly to principal.
Many companies are now offering 40 and 50 year mortgages. These mortgages will have slightly higher rates in most cases, but will stretch out payments to ease the monthly costs. However, since the loan is over a longer period of time, the interest you will end up paying is significantly higher, so it is important to weigh the overall value of having a lower monthly payment if the cost is having to pay more dollars over time.
Another very popular feature is the "Interest Only" payment option on the traditional 30-year or 15-year fixed rate mortgage. A mortgage loan with the interest-only feature requires monthly payment of only the interest accrued for the prior month.
If borrowers are have discipline, they can get an option ARM and control their amortization schedule much better than a 30 yr fixed program.
There are numerous loan options available besides a 30 year fixed mortgage. Many will provide a lower payment and allow you to qualify for a more expensive home. Contact a mortgage broker to determine the loan that is suitable for your needs.