The 30-Year Mortgage
What the 30-year fixed mortgage means to the borrower
In the 1950s, the 30-year fixed mortgage became the standard instrument for buying a home in the United States, and it has remained so ever since. In comparison to the newer 15-year mortgage option, a 30-year mortgage enables a borrower to spread out his or her commitments over a longer period. Although 30-year fixed interest rates are typically higher than shorter term loan rates, they offer lower monthly payments and a lower overall debt-to-income ratio to the borrower. These benefits can be especially attractive to younger borrowers who are just beginning their careers or to people who want to leave some of their cash liquid in case of an emergency.
The advantages of a 30-year fixed mortgage
There are two primary advantages to taking out a 30-year mortgage:
- Lower payments: When you amortize your payments over a 30-year term, even with slightly higher 30-year fixed rates, your monthly payments are lower than they would be with a shorter-term loan.
- Qualifying for a bigger loan: Choosing a 30-year fixed mortgage often allows borrowers to buy a more expensive home than a shorter term mortgage would. Here's why: Your ability to qualify for a loan has a lot to do with your current debt-to-income ratio. Your debt-to-income ratio takes into account your monthly income as compared to your monthly financial obligations. So, when payments are lower, which they would be on a 30-year mortgage in comparison to a 15-year mortgage, the borrower will typically qualify for a larger loan and more house.
Using a 30-year mortgage to create a safety net
Some buyers choose a 30-year fixed mortgage even if they could theoretically afford to make the higher payments associated with a 15-year mortgage. Why? Doing so allows them to keep some of their cash liquid each month. This enables them to put that cash into interest-bearing savings accounts so that they have it available for use in the event that it is needed.
Flexible payment options on your 30-year mortgage
Buyers using a 30-year loan still retain the flexibility to pay off their mortgages early without refinancing. On months when extra cash is available, the borrower can simply apply an extra payment toward the principal of the loan. This will reduce the principal balance of the loan and, as a result, the amount of interest paid over the life of the loan.
Apply for a 30-year mortgage with Citizens Bank
Whether you're searching for a 15-year or 30-year mortgage, Citizens Bank has variable and fixed rate mortgage options tailored to your particular needs. You can learn more about Citizens Bank's 30-year mortgage rates and options or apply for a mortgage online today. Or, for additional information, just contact a home loan advisor at 1-888-514-2300.