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30-Year Fixed Mortgage

What Is a 30-Year Fixed Rate Mortgage?

A 30-year fixed-rate mortgage is essentially a home loan that gives you 30 years to pay back the money you borrowed at an interest rate that won’t adjust for the life of the loan. Sounds easy, right? It is, but there are more granular details that will impact your choice of 30-year Florida mortgage over another type of home loan in Florida.

Let’s say a couple wants to purchase a $300,000 in Fort Lauderdale, Florida. If you use our mortgage calculator to compare the 15-year fixed and 30-year fixed mortgage choices, the 30-year mortgage will appear to be more inexpensive, but that’s only when you compare the monthly mortgage payment. However, when you compare total interest paid, the 15-year fixed is likely to about one-half percent to one percent less than the 30-year mortgage. So, while the couple will pay less per month with a 30-year term, they will be doing so at a higher interest rate. At the same time, most Florida home buyers prefer the 30-year fixed rate mortgage because the monthly payments are more affordable.

How Does a 30-Year Fixed-Rate Mortgage Work?

To start, it’s a fixed-rate mortgage, indicating your interest rate stays the same for the entire 30-year period or the loan is converted. For instance, a 30-year mortgage with a fixed rate of 4.5% would stay at that rate for the full 30 years—despite any fluctuations in the financial or real estate markets – Your rate is locked in!

To completely realize how a fixed-rate mortgage works, let’s examine the knowledge base for the three core areas of a Florida fixed rate loan: interest, principal, and amortization.

  • Interest: Florida mortgage lenders are interested in letting you borrow their money because they make a lot of money in return for what they loan you, called interest. With a 30-year mortgage loan, the mortgage company gets to accumulate 30 years’ worth of interest (if you keep the loan to full-term). The amount of interest you pay is also determined by the interest rate (a percent of your remaining loan balance). The higher the interest rate, the higher your interest payment—and overall cost of your loan.
  • Principal: Principal is the original amount of money you borrow from your Florida home lender to buy your home. For example, if you buy a $300,000 home with a 20% down payment ($60,000) and take out a loan for the rest, your principal balance will be $240,000.
  • Amortization: Amortization is a fancy word used to illustrate the process of paying off a mortgage. An amortization table illustrates how long your mortgage will last and how much you’ll repay in principal and interest per month or year. As you make monthly payments, most of your money will go toward interest and principal. The rest goes toward incidentals like property taxes, homeowner’s insurance, homeowner’s association (HOA) dues and private mortgage insurance (PMI). These vary from buyer to buyer depending on a number of different conditions.

Advantages of 30-Year Florida Home Loan

A 30-year home loan also has its benefits and advantages. Here's why you might choose a longer loan period:

  • Lower Monthly Payments: The same as car payment or any type of multi-year repayment – The longer the loan, the shorter the recurring payment. That might be appealing if you want financial flexibility while you pay off your mortgage each month. At the same time, if you’re buying a larger, more expensive home, then being able to pay over 30 years could make the payments more reasonable to your Florida home budget.
  • You Can Still Make Extra Payments: Just because the mortgage payments are fixed each month doesn’t mean you can’t pay down the debt sooner. In fact, many home buyers typically like to make on extra mortgage payment a year to reduce interest costs and increase equity in their home and help you pay the loan off ahead of term.
  • More Potential Tax Savings: The interest consumers pay on home loans is tax-deductible (Please consult with a tax advisor to determine personal tax implications) For example, when you have a 15-year loan, you're paying off interest more quickly than you would with a 30-year mortgage. Hence, the 30-year mortgage offers a larger tax deduction, especially in the early years of the home loan.

Disadvantages of 30-Year Fixed Mortgage

There are some disadvantages to opting for a 30-year mortgage over a shorter term.

By far, the biggest disadvantage is interest. Not only will you end up paying a higher interest rate on a 30-year fixed rate mortgage, but you'll also pay more total interest on the loan. This assumes you stay in loan for full term compared a mortgage product like the 15-year fixed. Another downside is that you'll take longer to build equity with a 30-year loan, since you're paying a lesser amount toward the interest and principal every month. That could be a drawback if you were planning to take out a home equity loan to pay for a home improvement project.

Related Links
15-Year Fixed Mortgage
Adjustable Rate Mortgage
FHA & VA Loans
Jumbo Mortgages

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