The 30-Year Fixed-Rate Mortgage

• Tweet
• Share
• Email

• Tweet
• Share
• Email

What is the 30-year fixed-rate mortgage plan? Home buyers usually favor this type of mortgage because it offers unequaled peace of mind. You know what your housing payment is going to be every month regardless of whether the economy is going through boom or bust. And thirty years also turns out to be a sweet spot among repayment schedules. A shorter period raises your payment significantly and a longer period (a lot of lenders are offering 40-year loans) boosts your interest expense further and means you might never actually own the home free and clear.

Shorter Loan Terms

Many buyers however, choose to take on the bulkier monthly payment that comes with a 15- or 20-year loan term. There are some good reasons to do it if you have the capability of swinging the payments. One good reason is to get a lower interest rate which is roughly half a percentage point less that you’ll get on a 30-year loan. But even bigger savings come from your ability to cut the loan’s duration in half. The power of compound interest comes into play here. The longer a debt is outstanding then the higher the interest tab ratchets. If you can cut a loan terms by half, you save a surprisingly large amount of interest. You’ll really save a bundle in the interest tab over the life of a loan when you combine the lower rate with the shorter term. The argument for a shorter mortgage is particularly compelling if you’re already in your late forties and would like to get that mortgage out of the way before retirement day. But depending on your overall financial picture it may make more sense to choose the 30-year loan with its easier to manage payments. After all, you could discipline yourself to invest the monthly savings and possibly earn an even greater turn than the money you would have saved on interest.

• Tweet
• Share
• Email