What are the pros and cons to a 30 year fixed mortgage?

Answer 1

Pros it helps you provide a home for your family for about the same or less monthly costs than the rent would be. So you can build up equity and have control over your life.

Cons it is a commitment and tends make you stay in one place and settle down.

What are your alternatives? Can you pay cash? Can you afford a 15 year mortgage? Do you want the uncertainty of an adjustable rate mortgage?

Answer 2

The 30 year fixed mortgage is a plain vanilla mortgage that has been around for years. The best thing about the 30 year is the mortgage is fixed so you do not get payment shock, like you can with an adjustable mortgage. There are other mortgages that may suit your needs better. Most people refinance every 3-5 years. An adjustable rate mortgage can be taken out with a fixed period for 2-10 years, and offers a lower interest rate, a lot of companies do not do the 2 yr anymore. If you are going to move in a few years, sell, or refinance in three years an adjustable mortgage would be better. At different times the spread between a 30 yr and adjustable rates are closer or farther apart, if there was not much of a spread to be safe I would go with a thirty year.
Another scenario to pick an adjustable may be if your credit is not that good and you know you will refinance to a better rate later on, always watch out for pre-payment penalties with whatever mortgage you get. Lastly, I saw Wachovia was offering a new fixed option mortgage. I like the option mortgages, or pick-a-pay, but the biggest drawback I had was they were completely adjustable. They are the most complicated mortgage product and the most misunderstood by consumers. If the interest rate was good and it was fixed I would probably choose a payment option mortgage, it offers you payment flexibility that a 30 yr mortgage does not.

Answer 3

Pros:

(1) The interest rate is fixed, so your principal and interest payment will remain the same (taxes and insurance could still make the payment go up)

(2) Rates on a 30 year are pretty low right now

(3) SOME of the interest is tax deductable, but tax advice should only be given by a true professional tax advisor. ALL mortgage loans have some tax deductable interest, whether it's fixed, adjustable, or variable.

Cons:

(1) 30 years is a long time to stretch a loan out, if you only make minimum payments you will pay for your house about 2.5 times when it's all said and done. Example:
Loan amount: $150,000.00
Interest rate: 6%
Term: 360/360 (30 yrs)
Payment (P&I): $899.33

Now, take that payment and multiply it by the term:
$899.33 x 360 = $323,758.80
Total interest paid = $173,758.80 !!!!

I bet most of you never even calculated that. Take the same loan, and put it on a 15 year (which will have a lower rate, but for example purposes I'll use the same rate):

Loan amount: $150,000
Interest rate: 6%
Term: 180/180 (15 yrs)
Payment (P&I): $1265.79

Same deal, shorter term, calculation:
$1265.79 x 180 = $227,842.20
Total interest paid = $77,842.20
Money saved = $95,916.60 !!!

Hope this helps!!

**Note - adjustable rates are higher than fixed rates right now. And the "pick-a-pay" loan the guy above refers to has a fully indexed rate that is higher than a current 30yr fixed rate*

Answer 4

Pro: The interest on any mortgage is tax deductible.

This mortgage won't go up, and inflation will probably take the house up in value and make the loan look like a deal.

Unless interest rates drop, then you might have to refinance.

If you lose your job you do have a big monthly bill that you are supposed to pay...

Answer 5

There are no cons.

The pros are;

You know how much your payments are going to be, and they likely won't change...

You will be paying mostly interest for the first few years, which you can deduct from your AGI to reduce your income taxes...

If a better rate comes along (after 5 years or so), you can refinance at a lower fixed rate...

If you win the lottery, you can pay it off...