Thirty Year Fixed Mortgage Rates and the Current Housing Situation

Thirty year fixed rate mortgages are one of the most popularfinancing options for homes. There are advantages and disadvantages to a thirtyyear fixed rate loan. Before deciding if a 30 year fixed rate mortgage is rightfor you, it is important to understand the pros and cons and carefully evaluateyour current financial situation.

When purchasing a home, there are a variety of financingoptions. Over the past several years, many people have decided to finance theirhomes with adjustable rate, interest only loans. When they did this, theirmonthly payment was low, because they were only paying the interest amount. Theprincipal of the loan was never reduced. At the end of the interest only term,the buyer had two choices. He or she could refinance again or pay off theprincipal in one lump sum. Clearly, most people opted for refinancing.

This choice worked well as long as home values were strong,because the value of the home increased over time. When housing prices droppedhowever, many people found that they owed much more money on their homes thanthey were worth. This prevented them from obtaining financing.

With a 30 year fixed rate mortgage, this scenario can neverhappen. The loan is arranged so that each monthly payment goes toward theinterest and the principal. Over the years, the principal, or the actual amountowed on the home, is reduced.

Once the 30 year fixed rate loan is closed, there is noreason to revisit it unless the borrower wishes to. If interest rates drop, theborrower may wish to refinance, either to lower his or her monthly payment orshorten the term of the loan. If, however, the bottom has dropped out ofhousing prices so dramatically that there is not sufficient equity in the home,the borrower is not forced into foreclosure, he or she simply continues to paythe existing mortgage.

The current housing market makes today a good time topurchase a home. Housing prices are low and lenders are eager to loan money toqualified applicants. If your credit history is strong and you have stableemployment, there has not been any time in recent history that is moreattractive for homebuyers.

It is important that we learn from the mistakes of the pasthowever. While some lenders may still offer interest only loans, a 30 yearfixed rate loan offers stability and peace of mind. With the fixed interestrate, you know exactly how much your payment will be from now until the end ofyour loan term. The only thing that will change the payment is if you initiatea refinancing. If, during the refinancing process, you believe that the newloan will not provide the same benefits as the existing loan, you are notrequired to close.

Many people shy away from a fixed rate loan because thealternative, an adjustable rate loan, appears more attractive. But it isimportant to realize that the initial rate can be increased just as easily asit can be decreased. As of August 2009, interest rates were very low andaffordable. Locking in a fixed rate loan at one of these low rates will savemoney over the life of the loan. If you choose an adjustable rate, you may savemoney over the first six months to year of the loan, however, as the economypicks up, interest rates will increase and you will miss the opportunity tolock in the lower interest rate.

If you are still unsure about the benefits of a fixed ratemortgage, ask your lender what their policy is on locking in an interest rate,and converting from an adjustable rate to a fixed rate mortgage. Some lendersallow this throughout the life of the loan, while others will require you torefinance the loan and go through another closing with another set of closingcosts. If your lender is operates this way, it is important to weigh thebenefits and drawbacks of an adjustable rate versus a fixed rate loan.

If you do decide to close on an adjustable rate loan, bevigilant about watching interest rates. While rates swing on a daily basis, acontinued upward track should be a warning sign that it is time to convert youradjustable rate to a fixed rate mortgage. If not, your payment may increase byhundreds of dollars when the lender makes their interest rate adjustment.

Thirty year fixed mortgage rates can sometimes be moreexpensive than adjustable rates, but they provide stability and predictability.And they give you the opportunity to plan for the future. For many modernhomeowners, this peace of mind is a worthy investment.