When a consumer is searching for a home to buy, the price of the home is an important factor. However, the interest rate of the loan is even more notable, because it is the interest rate that will determine the monthly payments as well as how much interest will be paid over the life of the loan. It’s vital that future homeowners examine the positive and negative factors involving this type of mortgage in order to better prepare themselves for the future.
For example, the most important part of a 30-year fixed loan is its’ long-term cost efficiency. With this type of loan, the interest rate is set and will not change, which means your monthly payments will be lower or remain the same.
The only way a fixed mortgage rate would vary is if the taxes on the property suddenly increased, or the homeowner’s insurance unexpectedly goes up in cost.
If these things did occur, the monetary change in the monthly payments would be quite small. Another positive aspect of a 30-year mortgage is the payments will be flexible.
If the homeowner is stuck with financial problems, there are ways to lower the monthly payments to help them remain in their home. In addition, if the homeowner finds themselves making more money, they can increase their payments to pay off the mortgage sooner.
If the increase is too much to handle, investigating another homeowner’s insurance is advisable. In addition to this, another positive aspect of a 30-year fixed mortgage is repaying the loan, because it will be fixed, the homeowner will find comfort knowing that they will not be rushed or forced to repay the loan within a time frame they are not equipped to comply with.
Also, this type of mortgage will allow the homeowner to buy a house that would otherwise be out of their reach. For example, when a homeowner spreads out their monthly payments over 30 years, homes that are within the more affluent real estate market, suddenly become more affordable. Another perk to a 30-year fixed mortgage is a possible tax deduction for the home’s interest rate, but this is not set in stone, so the homeowner should discuss this with a tax expert.
With all of these factors, it is easy to conclude that a 30-year fixed mortgage will allow the homeowner more time to repay the loan, with lower monthly payments, flexible payments, lower interest rates secured for 30 years, the goal of owning a home will be less of a dream and more of a reality. Subsequently, there are cons to a 30-year fixed mortgage.
For example, since the loan is set for 30 years, in the end, the homeowner will actually be paying more interest, because it will be extended for 30 years, and at a higher rate, which is due to the fact that the lender is essentially gambling with the homeowner’s ability to repay the loan, which forces them to place a higher interest rate on the home.
Another negative factor in a 30-year fixed mortgage is that the larger and more expensive house the homeowner is able to afford, there is a chance of property taxes increasing as the property itself goes up in value. Furthermore, a larger and more expensive home means larger maintenance costs, as well as the overall upkeep.
Though the 30-year fixed mortgage has many advantages, it is important to remember that the cost of the home and the interest will grow exponentially with a 30-year fixed rate, and the longer the loan is stretched out, the more money you will pay in the end. An example of this would be if the homeowner purchased a home for $409,000, with an interest rate of 4%.
After 30 years, you have paid over $700,000, with $293,946 just in interest. With this in mind, you can see how this type of loan will have you paying almost double what the house is worth.
Conversely, if you want to look at the difference between a 30 year and 15-year loan with regards to the overall payment, you can examine it with the same numbers as used above. $409,000 home with 4% interest rate; after 15 years, you’ve paid $554,558, with $135,558 in interest. In either case, you are still paying more than the house was originally worth.
Nonetheless, when purchasing a home, it is vital to examine the mortgage rates and decide whether a 30-year fixed mortgage is right for you.