30 Year Fixed Rate Mortgage: Security with Fixed Rate Home Mortgages | LoanBiz
The 30 year fixed rate mortgage offers maximum stability and safety, particularly for those who don't anticipate substantial increases in income. Its interest rate and monthly payment are fixed throughout the life of the loan (360 months). A 30 year FRM is the one of the most popular of all of the residential mortgage products and is available in conventional, jumbo (also called nonconforming) loans, FHA, and VA mortgages.
Advantages: This loan makes it easier to budget living expenses because the payment and rate never change. The loan is fully-amortized, so borrowers accrue equity even if their house's value doesn't increase rapidly.
Disadvantages: Interest rates are higher than an ARM's introductory rate, and if interest rates go down borrowers must refinance to get a better rate--it won't automatically drop, as it can with an ARM. The possibility of rates dropping while the borrower is stuck in a 30 year FRM is referred to as interest rate risk by economists.
The 30 year FRM is a great loan for those who plan to stay in their homes a long time, are risk-averse, or live on a relatively fixed income. And if they end up earning more money than expected, homeowners can always make additional principal payments whenever they want--accruing equity faster and saving thousands in interest over the life of the loan.
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