The 30-year fixed-rate mortgage has become so engrained in US real estate market that many people forget how beneficial these mortgages are. Before the Federal Housing Administration (FHA) was created in 1934, most loans would only allow 50% financing of the home price, which means that a hefty down payment was required to purchase a home. These loans had short term periods that would require borrowers to refinance every few years. Leading up to the Great Depression, banks that needed money could demand immediate repayment of the loan, forcing many homes into foreclosure.

In response to this conundrum, The Federal Housing Administration was created to back mortgage products, in hopes of stimulating the housing market. The creation of FHA insurance and the Federal National Mortgage Association, commonly known as Fannie Mae made the 30-year fixed-rate mortgage available nationwide. Ever since then, the 30-year fixed loan has been going strong, helping millions of American citizens buy homes when they couldn’t otherwise.

Definition of a fixed-rate mortgage
The standard 30-year fixed-rate mortgage is a home loan in which the interest rate and monthly payments remain static for the duration of the loan. Monthly payments only fluctuate slightly if there are changes made to the homeowners insurance or property taxes. You will essentially have the same payment amount each month. Borrowers who choose a 30-year fixed-rate loan will be provided with an amortization table at their settlement detailing their payment schedule for the entire loan.

Benefits of 30-year fixed-rate mortgages

Homes are still one of the largest assets for most Americans, and has been a symbol of success and financial stability. The biggest advantage to a 30-year fixed-rate mortgage is certainty of the principal and interest premiums. This helps homeowner’s plan easily while they enjoy the benefits of predictable and affordable payments. You can use a mortgage calculator to find out what your budget will look like with a fixed monthly mortgage payment.

Spreading the loan payments over a 30-year period makes the mortgage more affordable to more people. Fixed-rates help borrowers budget their expenses by having a predictable monthly payment. A mortgage can be a great wealth building tool and investment. Borrowers of 30 year fixed rate loans can also use the equity built up in their homes to create a strong financial profile and build future wealth.

Drawbacks of the 30-year fixed-rate mortgage
If you aren’t planning on staying in the home for very long, it may not make sense to get a 30-year fixed-rate mortgage. Many borrowers are looking to build equity quickly, and during the early stages of a 30 year mortgage, equity will build at a slow rate. Another drawback for borrowers is that the overall interest is higher because of the long amortization schedule. Interest rates are also typically higher on 30 year loans that on 10 or 15 year loans. If you are looking to move within the next few years, or are looking to refinance quickly, the 30-year fixed rate may not be the option for you.