Owning a home is an awesome feeling, let me tell you! Though we don’t own our home outright yet. Maybe we own a bedroom and a bit of the kitchen? Some grass in the yard? Like most people we had to take out a mortgage loan in order to buy our house. There are many different types of mortgage loans out there these days. We chose a 30-year, fixed rate mortgage.
Here’s what we considered in choosing a 30-year mortgage:
Affordability, low rate, fixed rate, and an option to pre-pay.
Let’s go through them…
Affordability – As much as I’d like to say otherwise, buying a home is expensive for us and finances will be tighter than they’ve been in a long while. A 30-year mortgage allowed the house to be more affordable than if we used a 15-year mortgage. We could be paying less per month with a different kind of mortgage, like a 40-year or adjustable rate, but we liked the stability of the 30-year fixed rate.
Low Rate – Mortgage interest rates are pretty much at historic lows these days. We didn’t get the lowest that rates have been for 30-year mortgages but we got a pretty good one, nonetheless. Like affordability, we could have gotten a lower interest rate with a 15-year fixed rate mortgage or with a variable rate mortgage but those mortgages came with other terms we weren’t prepared to take on.
Fixed Rate – With rates so low we wanted to make sure our rate would be locked in and wouldn’t go up in future years. We fully expect to stay here for a LOOONG time. Way we see it, there’s nowhere for rates to go but up in the long run. We don’t want to wake up one day and realize we have a high rate. The stability of always having the same mortgage payment over the life of the loan also attracted us to a 30-year fixed. Were we staying only five or so years then perhaps we would consider some kind of adjustable rate mortgage to save some on interest payments.
Option to Pre-Pay – We wanted to know that we could pay extra principal if we wanted to. In some other loan types, like adjustable rate mortgages, there can be penalties if you pre-pay. We want to knock out the loan as quick as we are able to while still keeping the mortgage affordable (which eliminates a 15-year fixed mortgage for us). Fact is, we have already started to pay extra toward the principal. Not much but it’s a habit we have already started and we hope to add to the amount when we can.
Basically it came down to us wanting one payment over the life of the loan where we know we could afford it and could pay extra towards it. I think a 30-year fixed rate mortgage fits that for us the best.