30 Year Fixed Rate Mortgage

Comparing 30 Year Fixed Rate Mortgage Versus Other Loan Programs

Gustan Cho Associates are mortgage brokers licensed in 48 states

This BLOG On Comparing 30 Year Fixed Rate Mortgage Versus Other Loan Programs Was UPDATED On May 13th, 2019

How to compare a 30-year fixed-rate mortgage with other loan programs

A 30-year mortgage is the most popular mortgage program for all loan programs.  FHA loan programs, VA loan programs, USDA loan programs, non-QM loans, and Jumbo loan programs all offer a 30-year fixed-rate home loans.

  • The 30-year fixed loan program has been the most popular loan program in the United States ever since the inception of home loans
  • The 30-year loans allow homeowners a fixed rate on their loans
  • Mortgage payment does not change during the life of the 30-year amortization
  • In 30 years, the balance of their home loan is paid off

In this article, we will cover and discuss comparing 30 versus 15-year mortgages.

Why 30 Year FRM Are So Popular

The reason the 30 year fixed rate loans are so popular is due to the affordability and flexibility of the monthly payment over a longer amortization schedule:

  • Homeowners do not have to worry about principal and interest payment increasing 
  • Homeowners have the sense of security no matter how high mortgage rates go up, they are guaranteed a fixed rate for the 30-year term
  • The mortgage rate on a 30 year fixed rate remains the same for the 30-year term of the loan

If a home buyer closed on a mortgage with a mortgage rate of 4.0% and mortgage rates go up to 10.75% in 10 years, they still have the 4.0% mortgage rate secured for the term of the loan.

No Prepayment Penalty

Which means no prepayment penalty

If homeowners can make an extra mortgage payment and pay down the principal on the mortgage loan balance. By doing so, they can shave off the 30-year term by several years.

  • Just because borrowers get a 30 year fixed rate mortgage does not mean they cannot pay off the loan earlier
  • There are no pre-payment penalties in paying off loan balance earlier

There are also the following loan terms:

  • 25 year fixed rate
  • 20 year fixed rate
  • 15 year fixed rate
  • 10 year fixed rate programs

Borrowers can structure 30-year mortgage so they can have loan balance paid off in a shorter time period without refinancing 30-year mortgage:

Lenders can calculate monthly payments to amortize it for 25 years, 20 years, 15 years, 10 years, or shorter.

Mortgage Rates On 30 Year FRM

Mortgage rates on 30 year fixed rate loans are normally higher than 10-year, 15-year, 20-year, and 25-year fixed mortgage rates.

  • The reason that 30-year fixed-rate loans are higher than lower amortized mortgage rates is due to the fact that lenders have a longer-term to secure a mortgage rate
  • For example, if the borrower has a 10 year fixed rate mortgage loan, the lender is only liable for a 10 year period for the particular rate

With 30 year fixed rates, the lender is liable for a guaranteed interest rate on a mortgage for 30 years.

30 Year Fixed Rate Versus ARMs

What is the difference between a 30-year fixed rate versus ARM

Fixed-rate mortgages are generally higher than adjustable rate mortgages (ARM) .

Here is how adjustable-rate mortgages work:

  • The most popular adjustable rate mortgages are 5/1 and 7/1 ARM
  • Starter rate is fixed either for the first 5 years or first 7 years
  • Mortgage Rates on an ARM adjusts every year after the initial fixed-rate period
  • All adjustable-rate mortgages are amortized over 30 years

Adjustable Rate Mortgages are great products for first time home buyers who are buying a starter home and planning on moving or upgrading to a larger home in the future. Again, the adjustable-rate mortgage has lower mortgage rates. It is ideal for first time home buyers and borrowers with lower credit scores planning on refinancing their mortgage loans in the near future.

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