What is a 30-year fixed mortgage?

Quick insights

• 30-year fixed-rate mortgages are home loans that can be paid in full in 30 years if every payment is made on schedule.
• With a 30-year fixed-rate mortgage, the interest rate stays the same for all 30 years.
• When buying a home, a 30-year mortgage can be a popular choice of loan for several reasons.

Approaching homeownership can be a stressful but wonderful experience. You’re not just buying property—you’re buying a home you could enjoy for years to come.

Among the mortgage options that may be available to you is the 30-year fixed-rate mortgage. This is a common type of mortgage that many people choose. Let’s explain how it works before you decide if it’s right for you.

How does a 30-year fixed rate mortgage work?

A mortgage normally consists of several main components.

• Principal: This is the amount of your loan, typically the price at which you purchase the home minus your down payment. For example, putting a 20% down payment on a $300,000 house would make the principal $240,000.
• Mortgage term: 30 years is a common mortgage term and the longest that lenders generally offer for a mortgage loan. Shorter terms include 15, 20 and 25 years. The term establishes the amount of time it will take to pay your mortgage in full if you make every scheduled payment.
• Interest rate: Expressed a percentage, a fixed rate refers to an interest rate that is charged on the loan for the entire term. So, for a 30-year fixed-rate mortgage, you’ll have the same interest rate for all 30 years it takes to repay the loan.

Fixed-rate mortgage payments

A fixed interest rate usually creates a consistent monthly payment that you make until the loan is paid in full. With a fixed interest rate, monthly payments on a 30-year loan may break down the same as a mortgage payment for other mortgage terms. Each payment for a 30-year fixed-rate mortgage is often split into several parts, including interest and the loan principal.

Types of 30-year mortgages

While a 30-year fixed-rate mortgage is a popular conventional loan, there are several mortgage options that could be available to you:

• Federal Housing Administration (FHA): An FHA loan is a mortgage loan offered by an FHA-approved lender and insured by the FHA.
• Jumbo: A mortgage loan for a more expensive property. As an example, maximum amount for a jumbo loan at Chase is $9.5 million.
• U.S. Department of Veterans Affairs (VA): VA loans are backed by this government department, provide competitive rates and help lenders offer servicemembers more flexible finance terms.
• Standard Agency mortgage: This type of loan has down payment options as low as 3% and is typically a good choice for people with higher credit scores. Mortgage Insurance (MI) may be required for down payments less than 20% on conventional loans.

What is the average 30-year mortgage rate?

The average 30-year mortgage rate varies depending on when you calculate it. For example, the average mortgage rates for several years in the 1980s may be much higher than the current average. You can find current mortgage rates for various locations on our website.

What determines a 30-year mortgage interest rate?

The financial side of the homebuying process helps determines your mortgage rate, including these aspects:

• Your credit: Both your credit score and credit history represent aspects of your financial activity. Lenders use this information to evaluate the risk of providing your mortgage and the terms they’re willing to offer.
• Your down payment: A larger down payment helps calculate your loan principal, and a lower loan amount could be less risky for the lender. As a result, lenders may offer a lower interest rate for a mortgage depending on the size of your down payment.
• The loan type: The type of mortgage you apply for will help the lender determine your interest rate. Some loans could have more competitive interest rates than others.

Mortgage rates are also determined in part by a home’s location and economic factors. As a result, rates might change every day based on market activity and economic conditions. You can find current mortgage rates by location on our website.

Why consider a 30-year fixed rate mortgage?

People can find a 30-year fixed-rate mortgage appealing for a variety of reasons. For some, it’s about trying to simplify what they expect from a mortgage. For others, the mortgage term may provide financial flexibility through a monthly payment in their budgets.

Choosing a mortgage can be a complex process that varies from one homebuyer to the next. The down payment, monthly payments and interest are some of the main factors to consider. Yet, as with any loan, there are pros and cons of a 30-year mortgage that depend on the person and situation.

Pros of a 30-year mortgage

Here are some of the top reasons the 30-year fixed-rate mortgage is a popular choice for homebuyers.

Monthly payments are consistent

A fixed rate usually creates consistent monthly mortgage payments. Because the rate is fixed, the portion of each payment that goes toward interest each month is not affected by the interest rate. Having a consistent monthly bill can help manage a budget over time and put you in a better position to handle life’s unpredictability.

Extra mortgage payments may be applied to the principal

Lenders may allow you to make payments toward your mortgage beyond the required one each month. Each lender treats extra payments differently, but they can often be applied directly to the loan principal. Paying down your principal can save money on interest over the course of repaying the loan.

The 30-year term may increase your home budget

A 30-year term could increase your chances of being approved for a more expensive home. The loan term sets the number of total payments needed to repay the loan—a longer term means a higher number of payments. This spread may lower the monthly amount and, as a result, lower your debt-to-income ratio. That can be appealing to lenders when they review your application.

Cons of a 30-year mortgage

While 30-year mortgages are a common choice, there could be downsides to a 30-year fixed-rate mortgage depending on your situation.

You pay more in interest than you might with other mortgages

The amount you pay in interest over the course of a loan is based on the term of the loan and the interest rate. This can mean you pay more in interest on a 30-year fixed-rate mortgage than you would on a loan with a shorter term, such as 15 or 20 years. In short, the higher the interest rate, the more you may pay as you repay your mortgage loan.

Building equity can take longer

Early in the term of a 30-year mortgage, the part of your monthly payment that covers interest is larger than the part that covers your loan principal. This allocation changes over time—a process called amortization. Because less of your principal is paid toward the beginning of the loan term, building equity with a 30-year mortgage can take more time than it would with shorter-term loans.

Your interest rate is locked unless you refinance

The purpose of refinancing is usually to get a new loan with a lower interest rate. Mortgage interest rates are based on many factors, including economic conditions. If you take out your mortgage when the interest rates are higher, but they become lower sometime during your mortgage term, you may refinance at a lower rate.

The benefits of refinancing your mortgage depend on how long you plan to stay in your home and the fees that can be associated with refinancing. The costs are for things like appraisals, title searches and other bank services. If you won’t be staying in your home for long, the savings of refinancing might not outweigh the costs, as recouping them could take several years.

In summary

You may have several loan options available to you when buying a home, including the common 30-year fixed-rate mortgage. This option is frequently chosen because the length of its loan term and fixed interest rate offer predictability for most budgets. Learn more about the mortgage terms you’ll hear on your journey to purchasing a home.