30-Year Fixed-Rate Mortgage: What You Should Know

If you want predictability, a 30-year fixed-rate mortgage may appeal to you. Unlike adjustable-rate mortgages, they offer stable rates over time. However, this stability often requires you to contend with higher rates than other products on the market offer for at least some of the loan’s life. Deciding whether this type of loan is worth it will depend on your risk tolerance and how rates compare with other loans.

What is a 30-year Fixed-Rate Mortgage?

A 30-year fixed-rate mortgage offers a guaranteed interest rate for its entire 30-year lifespan. After thirty years, the borrower will own their house (assuming they don’t miss any payments).

They work the same way as 15-year fixed-rate mortgages, but payments are spread out over extended periods.

How Does a 30-Year Fixed-Rate Mortgage Work?

As with any home loan, a 30-year fixed-rate mortgage requires a down payment, often 10-20% of the loan’s value. The remainder of the loan is the principal, and monthly payments depend primarily on the principal and interest rate.

You will also have to budget for mortgage insurance costs (unless you take out a loan type that waives it or put down a sizeable down payment), home insurance, and property taxes.

The rate a mortgage lender offers you will depend on the following factors:

Credit score. The better your credit score, the more “creditworthy” the lender will see you. This gives them more confidence in your ability to repay the loan, and as a result, they will offer a lower interest rate.
Down payment. Another factor that affects a borrower's perceived creditworthiness is the size of their down payment. The larger this down payment is, the more likely a lender will offer a lower interest rate.
Market activity. Interest rates are constantly fluctuating, and mortgage interest rates are no exception. The Fed changes its federal funds rate depending on whether it wants to stimulate the economy or counter inflation.
Location. While overall trends for mortgage rates follow patterns across the nation (and to some extent worldwide), there’s some variation depending on the area. Different states have different laws and regulations, which can impact rates.
Loan type. Some types of home loans typically come with lower interest rates, such as VA loans.

30-Year Fixed-Rate Mortgage Example

Let’s say you purchase a house worth $300,000. You put down a 20% down payment ($60,000), meaning a loan principal of $240,000. A 30-year mortgage is spread over thirty years, which works out as 360 months. So, the monthly payments based on the principal alone would be $240,000 divided by 360—roughly $666.67.

However, there’s also the interest rate to consider. For the sake of simplicity, let’s say the mortgage lender offers a rate of 6%. This is more complex to calculate since it requires a compound interest formula, but it brings the principal and interest payments up to roughly $1,439.

The final costs would be property taxes of $170 and home insurance of $105, based on Zillow’s estimates. However, these would vary based on factors like the house's location.

The total monthly payments would be $1,439 + $170 + $105, which is $1,714.

In the above case, because you’re putting down a 20% down payment, you won’t have to pay private mortgage insurance (PMI).

However, a 10% down payment of $30,000 would add this additional cost to the bill. PMI typically costs 0.5% to 1.5% of the loan amount so it would amount to around $133 in this case. Because the principal would be $270,000 and not $240,000, monthly interest payments would also be higher.

To be precise, monthly payments would be $1,619 + $133 + $170 + $105—that’s $2,027.

Types of 30-Year Fixed-Rate Mortgage

Most 30-year-fixed-rate mortgages are conventional loans, meaning they have no government backing. They can be either conforming (meaning they meet regulations for sale to Freddie Mac or Fannie Mae) or nonconforming (meaning they don’t).

It may be possible to obtain a 30-year-fixed-rate mortgage as a government-backed loan, which means that the government insures the mortgage. They can be either:

FHA loans — insured by the Federal Housing Administration
VA loans — insured by the Department of Veterans Affairs
USDA loans — insured by the United States Department of Agriculture

Another type is a jumbo 30-year fixed-rate mortgage. These are a type of nonconforming loan as they allow home buyers to borrow a more significant amount than usual, and they’re typically only available to those with a high credit score.

However, the type of loan available to you depends on which products mortgage lenders offer.

Pros and Cons of a 30-Year Fixed-Rate Mortgage

Pros	Cons
It offers certainty and stability	You’ll incur more interest
It is easier to plan for the future due to this certainty	You’ll generally pay a higher interest rate than a 15-year mortgage
It’s one of the most common loan types, and most borrowers can qualify	The high length of the loan term makes it harder to reach financial freedom
You can usually overpay on the loan to reduce your debt, offering flexibility	The extended loan term also means it takes longer to build up equity
A longer loan term may help you to afford a more expensive property	May tempt you to buy a more expensive property than you should
You can deduct more from taxes by itemizing instead of using the standard deduction (since you will be paying more interest)	You will be paying the loan off for longer, which may make it harder to reach other financial goals.

Is a 30-Year Fixed-Rate Mortgage a Good Idea?

The 30-year fixed-rate mortgage is one of the most popular home loan types. Since borrowers know precisely what monthly payments they’re signing up for, they can minimize the risk of defaulting on their mortgage and plan for the future more easily. However, this may mean accepting higher interest rates than elsewhere, so compare the rate with other products and understand the differences.

Consider a 30-Year Fixed-Rate Mortgage If:

You want to buy an expensive property. Choosing a 30-year fixed-rate mortgage over a lower term is a way of getting on the property ladder and securing a house in your desired area.
Stability matters to you. While a 30-year-fixed rate mortgage will mean you risk paying an interest rate above market rates for some points in your loan’s term, you won’t have to worry about rates skyrocketing unexpectedly.
You want lower monthly payments. A longer loan term means you’ll pay a lower amount each month.

Is Now a Good Time for a 30-Year Fixed-Rate Mortgage?

As of May 9, 2024, the average 30-year fixed-rate mortgage has an average interest rate of 7.25%. However, these numbers constantly change, so it’s important to talk to a mortgage advisor or check the latest rates.

You can track the daily mortgage rates for 30-year fixed-rate mortgages on FreeRateUpdate. We post the latest market rates daily with up-to-date information.

How do 30-year Fixed-Rate Mortgages Compare to Adjustable-Rate Mortgages?

In the case of adjustable-rate mortgages, the interest rate the borrower pays fluctuates over time. To make this possible, the interest rate associated with these mortgages usually follows an index representing overall market rates, such as the Constant Maturity Treasury (CMT) rate.

When the borrower signs up for a fixed-rate mortgage, the initial rate they pay may be based on an index like this and current market rates. But instead of changing with the index and the market, the rate remains the same for the life of the mortgage.

Fixed-rate mortgages are an excellent option for those who want stability and certainty. Borrowers know what they’re signing up for from the get-go and can plan for the future, knowing their monthly payments will remain the same.

However, adjustable-rate mortgages sometimes offer better rates. If you take out your fixed-rate mortgage when market rates are high and they drop shortly after, you may get a worse deal. The right choice depends on how much risk a borrower will take.

FAQs

What Happens If You Pay Off a 30-Year-Fixed-Rate Mortgage Early

It depends on the terms of the lender. Some mortgage lenders charge prepayment penalties. Check if these apply and if their value is higher or lower than the amount you’d save in interest payments.

Is a 30-Year Mortgage Better than a 15-Year Mortgage?

Not necessarily. A 15-year mortgage will likely have a lower interest rate and allow you to pay the property off more quickly, but you’ll also be making much higher monthly payments. The right choice depends on you as an individual.

What is a Good Mortgage Rate for a 30-Year Fixed?

What classifies as a “good” interest rate depends on various factors, such as the market and your credit history. Anything below the current average of around 7% would be considered reasonable.