Fixed rates, low payments and high interest with this popular term.
Among the mortgage terms out there, 30-year mortgages offer stability with the lowest monthly payments. But be mindful of the high interest you’ll pay in the long run.
Lenders that offer 30-year mortgages
How does a 30-year mortgage compare to other loan terms?
The biggest difference between a 30-year mortgage and other mortgage terms is the amount of interest you’ll pay over the life of the loan. Depending on your initial APR, you could end up paying close to your initial principal in interest alone.
On a 30-year, $200,000 mortgage at 4.5% APR, you might pay a lower monthly payment of $1,013. But your total interest paid by the end of the loan would be $164,813.
The same loan and interest rate on a 15-year schedule would result in a total of $75,398 interest, albeit through higher $1,530 monthly payments.
| Mortgage term | Monthly payment | Total Interest Paid |
|---|---|---|
| 15 years | $1,530 | $75,398 |
| 30 years | $1,013 | $164,813 |
Because lenders have a greater chance of not seeing full payment on such a long loan, 30-year mortgages tend to have higher interest rates than their shorter counterparts.
What are the benefits of a 30-year mortgage?
A 30-year mortgage offers a few useful benefits for homeowners, including:
- Buying a bigger house. With lower monthly payments, a 30-year mortgage could get you a larger loan.
- Saving more in the short term. Lower monthly payments mean more money to stash away in savings or other investments — but you’ll pay more interest in the long run.
- Qualifying for a loan. Lower monthly payments make it easier to qualify for a 30-year mortgage.
- Bigger tax deduction. Since you can write off mortgage interest on your taxes, you can file larger deductions on compared to other terms.
What should I watch out for?
Despite their popularity, 30-year mortgages come with a few caveats. With these mortgages you could:
- Pay high interest rates. Lenders tend to charge higher interest rates on 30-year terms.
- Pay more interest. Smaller monthly payments over a longer time means paying more interest in the long run.
- Build equity slower. Compared to a shorter-term mortgage, it takes longer to build equity and truly own your home with a 30-year mortgage.
Is a 30-year mortgage loan right for me?
The lower monthly payments of a 30-year mortgage offer flexibility in your income — an asset if big life changes are on the horizon. Down the road, you’ll have the option to refinance to shorter terms if you can afford larger monthly payments.
With that said, if you can avoid the high interest on a 30-year mortgage, it could save you money. If you can comfortably pay your mortgage and living expenses, and want to quickly build equity in your home, you may consider a 15-or 10-year mortgage.
ARMs vs. fixed 30-year mortgages
An alternate option to fixed-rate mortgages are adjustable-rate mortgages. ARMs offer interest rates that can increase or decrease after an initial fixed period. For example, a 5/1 ARM has a fixed interest rate for the first five years, and can change annually for the remaining 25 years.
Since your interest can fluctuate after the fixed period, so can your monthly payments and total interest — depending on the market indexes. To compensate, most ARMs start with lower interest rates than fixed-rate mortgages, making them appealing to borrowers.
If you plan on staying in your home for the long term, a 30-year mortgage can offer you the most stability. But if you plan on moving in five years, an ARM can save you in interest and bring down your monthly payments.
Which banks offer a 30-year mortgage?
- Quicken Loans
- Citi
- Chase
- Bank of America
- Wells Fargo
- U.S. Bank
Bottom line
When it comes to flexibility and stability, it’s tough to beat a traditional 30-year mortgage. Low monthly payments coupled with a fixed rate can help you plan your financial future.
But if you don’t plan on living in the house for 30 years or don’t like the idea of paying more interest over the life of the loan, compare other mortgage terms that may better suit your needs.
