Pros and Cons of a 30 Year Mortgage
A 30-year mortgage offers lower monthly payments and greater flexibility over a 15-year mortgage. Discover other benefits of a 30-year mortgage.
Because houses are so expensive, most homeowners make a small down payment, then pay for the rest of their home using a loan. A loan you use for your house is also known as a mortgage. For the majority of homeowners, their mortgage is their largest loan, repaid in either 15 or 30 years. If you default on your mortgage payments, your house becomes collateral. Once you finally pay off your mortgage, the house is officially in your name.
You do not want to rush when deciding on a mortgage. Take the time to go through multiple lenders to get the best results. Whenever possible, prioritize fixed interest rates, as these provide the most stability. The most common type of mortgage is a 30-year mortgage. There are many benefits associated with these longer mortgages, but there are also a few downsides to be aware of as well.
Lower Monthly Payments
Without a doubt, the biggest advantage of a 30-year mortgage is the length of the loan. Because you have double the time to pay your loan, you have significantly lower monthly payments compared to a 15-year mortgage. As of writing, the average cost of a mortgage is between $1,200 and $1,500 a month. In comparison, a 15-year mortgage costs between $1,700 and $2,000 on average each month. Not only are lower monthly payments less stressful, but it becomes easier to set your budget. You can purchase your dream home without having to make major qualify of life sacrifices.
15- and 30-year mortgages refer to the maximum amount of time you have to pay off your loan. While some homeowners use the maximum amount of time to pay their mortgage, others prefer to pay off their mortgage sooner. With a 30-year mortgage, you have more flexibility with your budget. Many homeowners spend their first few years making the minimum payment, but as they advance in their careers and build up a greater savings, they start to make larger payments, eventually paying off the mortgage in a quicker period. If there is an emergency, you have a greater chance of recovering and adjusting your budget to keep up with your mortgage payments.
Another benefit with 30-year mortgages relates to tax laws. Under the current laws, you are allowed to deduct your mortgage interest from your taxes. The majority of homeowners spend the first few years paying off their interest, leading to generous tax deductions during this period. This is especially helpful right after you purchase a house, since your finances are often strained after such a big purchase.
Simpler Eligibility Requirements
Because of the longer duration, the eligibility requirements are not as strict on a 30-year mortgage. This not only makes it easier to get a mortgage in the first place, but it also helps in negotiations. With a 15-year mortgage, lenders are much stricter. If you do not have a particularly high credit score, you are more likely to end up with higher interest rates on a 15-year mortgage.
The greatest strength of a 30-year mortgage can also be a weakness. Because a 30-year mortgage takes longer to pay off, you are in debt for a long period. Being in debt makes it harder to take out additional loan. If you are older and do not pay off your debt before you pass away, your debt is inherited by your family members. There are also some financial options that are only available once you fully own your home, but do not apply if you are still making mortgage payments.
One of the reasons homeowners try to pay off their 30-year mortgage quicker is because of the interest rates. Most 30-year mortgages have between 2 to 4 percent interest rates. While this seems low, it can quickly add up when you consider how long it takes to pay off your loan. It is not uncommon for homeowners to end up paying around $200,000 to $250,000 extra in interest rates once they finally pay off their mortgage.
Guild Mortgage Co.
Guild is a popular mortgage lender because they offer some of the lowest interest rates on 30-year mortgages, rarely exceeding 3 percent. Guild also offers flexible repayment options. You can also get assistance with your down payment through Guild. While it is one of the top lenders, they also have higher than average eligibility requirements. At a minimum, you want a 600-credit score when you apply for a Guild mortgage.
Movement is becoming one of the largest lenders in the United States. They offer fair interest rates and gained a reputation for being more flexible than other mortgage lenders. Movement quickly processes applications, which is helpful if you need to quickly close on a home.
Ally is a smaller mortgage lender, and is currently only available in 35 states plus Washington D.C. The application process is done entirely online. The biggest advantage Ally has is price transparency and minimal fees, ultimately leading to lower closing costs. All of the information you need is available on the website, eliminating the need to speak with a loan officer. The online process also makes preapproval take a few minutes.