If you knew the history of 30-year fixed mortgage rates, you might be more motivated to buy a home with a 30-year fixed rate mortgage as soon as possible. You have more good choices in a fixed-rate 30-year mortgage now than ever before.
Are today's 30-year year fixed rate mortgage rates a good deal?
Does an old-fashioned clock chime 12 at midnight? Back in 1981, 30-year fixed mortgage interest rates were a whopping 18%. That’s right: almost 20% interest on home loans. Home prices were a lot lower in the 1980s, but 18% is still a very high rate.
In 2008 when the mortgage crisis hit so many U.S. homeowners, mortgage rates were about 6.5%. Since the crisis, mortgage interest rates have been falling. They reached their lowest point at an average of about 3.5% in 2016. In 2018, the average fixed rate 30-year mortgage interest was 4.7% according to Bankrate. You can find 30-year mortgage interest rates starting at 3.55% and up.
What are the advantages of a 30-year fixed rate mortgage?
- Lower monthly payments: Mortgages are amortized (reduced according to a formula) over 360 monthly payments in a 30-year fixed mortgage. Monthly payments for 30-year mortgages are lower than the payments on shorter loan terms, like 15-year mortgages.
- Predictable and stable: 30-year fixed rate mortgages don’t change. You can plan your finances more easily with stable 30-year fixed rate mortgages.
- Afford a better house: With lower monthly payments, you can take out a larger total loan using a 30-year mortgage and buy a better property.
- Supports savings and investment: If your monthly payments are affordable, you can set aside money for other needs, like investments, retirement, and college costs.
What are the disadvantages of a 30-year fixed rate mortgage?
- Higher interest rates: Interest rates for 30-year mortgages are usually at least half a point higher sometimes more than 15-year fixed rate mortgages.
- Buying too much house: You could be tempted to buy a house that’s really more than you can afford with low interest rates and monthly payments spread out over 360 months that give your family little financial breathing room.
- More total interest paid: You’ll pay significantly more interest over 360 monthly payments in a 30-year mortgage than you with over the 180 monthly payments you’ll make on a 15-year loan.
There’s a lot to consider when buying a home. A 30-year fixed rate mortgage could be the right choice for you, or you may find other mortgage terms such as a 3/1 ARM, a 5/1 ARM, a 7/1 ARM, or even a 10/1 ARM to be the better option. Or alternatively some of the more financially sophisticated or savvy investor types have been opting for the interest only ARM’s, or fixed interest only mortgage loans; as a way to get in on home ownership and benefit from appreciation gains in equity, and tax benefits of home ownership, all the while making lower monthly payments similar to renting. But with renting there is no upside of equity gain, which home ownership provides. So there is definitely a lot to consider.