A thirty-year-old first-time homebuyer asked me an interesting question: Why should he get a 30-year fixed-rate loan? I realized there are reasons for and against it. As I explained to him, the pros and cons are:
Pros: Predictability is the main advantage with a 30-year fixed-rate mortgage: You know exactly what your principal and interest payment will be every month for the duration of your loan.
Plus, if your mortgage has no prepayment penalties, you can shorten the term of the loan by simply paying more than the required payment. This will reduce your principal faster than scheduled. You will be amazed how small additional monthly payments will reduce your loan term and save you thousands of dollars!
Cons: Stability does come at a small price. Interest rates on fixed-rate loans are usually higher than starting rates on adjustable-rate (ARM) loans. But with an adjustable-rate loan, you are subject to interest-rate fluctuations once the fixed period of the ARM expires which typically results in higher mortgage payments down the road.
It’s always best to decide for yourself. One of our Mortgage Consultants can help you weigh the pros and cons to find the best possible solution for your individual situation.
