A 30 year fixed rate mortgage is a loan where the interest rate stays the same for the 30 year period. A simple example for a fixed mortgage loan would look like this: Suppose you are looking to purchase a $500,000 home with an interest rate of 5.50% and a 25% down payment, your initial loan will be $375,000. The monthly payment for the loan will be $2,129.21. Initially your payments will consist mostly of interest and less of principal, In time this will reverse and your monthly payments will be growing your equity.
Why choose a 30 year fixed mortgage?
The 30 year fixed mortgage will make your budgeting simple since the monthly payments are the same for the loan duration. You will avoid shocking rate fluctuations, but if rates go down you can always refinance. There is a tax deduction from the interest you pay on the mortgage. The rate is not tied to an index, so no need to worry about inflation.
Who could benefit from a 30 year fixed mortgage?
- Someone who does not like risk
- Someone who wants control over their budgeting and personal finance
- Someone planning on spending over 7 years in their home
- Someone looking for smaller monthly payments
*You can plan and test out different loan amounts and rates using a fixed mortgage calculator excel sheet that you can download from khanacademy.org by clicking here