30-year mortgage FAQ

• What is a 30-year fixed mortgage?

  A fixed-rate mortgage has an interest rate that doesn’t change over the full term of the loan, which, for a 30-year mortgage (as the name suggests) is 30 years. It’s a popular choice for many homebuyers because of its stable monthly principal and interest payments are ideal for predictable monthly household budgets, at a more affordable cost than shorter-term loans.

• How are 30-year mortgage rates set?

  Mortgage rates in general are influenced by a variety of factors, which means there’s no one specific rate available in the market at any time. Broadly, mortgage rates are influenced by Federal Reserve policy, which affects borrowing costs for banks that then get passed onto their customers who take out loans. On a more granular level, every mortgage applicant is evaluated by a variety of metrics including credit score, employment history, income, existing debts and other factors, all of which influence what rate a lender will offer you.

• Historical 30-year rates

  According to Freddie Mac historical data, the 30-year fixed rate shot up to about 18 percent in September and October of 1981, which would give current homebuyers quite the sticker shock. The U.S. was in the midst of an economic recession back then, and the Federal Reserve hiked rates in an effort to curb inflation.

  Today, mortgage rates are near historic lows, around 3 percent — but most experts expect 2021 to be characterized by rising interest rates. It may take a while for mortgage interest to return to its pre-pandemic levels, but if you’re thinking about getting a new mortgage or refinancing your existing one, you may want to act sooner than later.

  When the housing crisis hit in 2008, the average annual 30-year fixed rate was 6.23 percent, according to historical Bankrate data. Since then, it has fallen considerably. When 30-year fixed mortgage rates decline, getting a mortgage is more affordable for homebuyers and those looking to refinance. However, home prices, which have been rising for the last several years, can present a barrier for potential homeowners even when mortgage rates are low.

  The benchmark 30-year fixed rate hit a record low of 2.93 percent during the week of Jan. 27, 2021, according to historical Bankrate data.

  Bankrate average annual 30-year fixed mortgage rate, 2008-2020

  Year	Average 30-Year Fixed Annual Rate
  2008	6.23%
  2009	5.38%
  2010	4.86%
  2011	4.65%
  2012	3.88%
  2013	4.16%
  2014	4.31%
  2015	3.99%
  2016	3.79%
  2017	4.14%
  2018	4.70%
  2019	4.13%
  2020	3.38%

• When to consider a 30-year fixed mortgage

  A 30-year fixed mortgage is best for those looking for predictable, relatively low monthly payments. You’ll wind up paying more in interest over the life of a 30-year mortgage than a 15- or 20-year one, but because of the longer repayment timeline, your monthly costs will be lower, so the more expensive loan may ultimately be easier on your budget.

• Pros and cons of a 30-year mortgage

  Choosing the right home loan is an important step in the homebuying process, and you have a lot of options. You need to take several factors into consideration, including your credit score, income, down payment amount, budget and financial goals. Here are the main pros and cons of a 30-year fixed mortgage.

  Pros

  • Lower monthly payment: Repaying a mortgage over 30 years means you’ll have lower, more affordable payments spread out over time compared to shorter-term loans like 15-year mortgages.
  • Stability: Having a consistent principal and interest payment helps you better map out your housing expenses for the long term. (Your overall monthly housing expenses can change, however, if your homeowners insurance and property taxes go up or down.) Of course, this is only true if your mortgage has a fixed rate. An adjustable-rate mortgage won’t give you this same benefit for the whole life of the loan.
  • Buy more house: With lower payments, you might be able to qualify for a larger loan amount and may be able to afford a more expensive home.
  • More wiggle room: Lower monthly payments can provide more cushion in your budget for other goals, like saving for emergencies, retirement, college tuition or home repairs and maintenance.

  Cons

  • More total interest paid: Stretching out repayment over 30 years means you’ll wind up paying more in interest overall than you would with a shorter-term loan.
  • Higher mortgage rates: Lenders usually charge higher interest rates for 30-year loans because they’re taking on the risk of not being repaid for a longer amount of time.
  • Becoming house poor: Just because you might be able to afford more house with a 30-year loan doesn’t mean you should overstretch your budget. Give yourself some breathing room for other financial goals and unexpected expenses.
  • Slower equity growth: It will take longer to build equity in your home because most of your initial mortgage payments will go towards interest rather than paying down your principal amount.

• Refinancing a 30-year mortgage

  It’s generally a good idea to refinance your 30-year fixed mortgage into a new loan if you can get a lower interest rate, lower your monthly payment, or improve your financial situation in another way. However, if you’re several years into repaying your loan and you refinance into a new 30-year mortgage, you’ll be paying more total interest in the long run by starting the repayment clock from scratch again.

  You’ll also need to determine if the closing costs on your new loan outweigh the savings you’ll gain from lower monthly payments over time. When you refinance a 30-year mortgage, you’ll pay lender origination fees and third-party fees for an appraisal and other closing costs. Most lenders also require you to have at least 20 percent equity in your home to refinance, so make sure you qualify before planning a new budget for yourself.

  If you can, consider refinancing a 30-year mortgage into a shorter loan, which will avoid lengthening your overall repayment period and help you save on interest. Keep in mind, though, you might have a higher monthly payment depending where you are in the amortization schedule.

Other mortgage tools:

• Mortgage calculator: estimate your monthly payment and see how much house you can afford
• Compare today's top refinance rates: lower your monthly mortgage payment
• First time home buyers grants and programs: get financial assistance to lower your down payment and closing costs