Advantages & Disadvantages of the 30-Year Fixed-Rate Mortgage Loan

At a glance: The primary advantage of a 30-year fixed-rate mortgage is payment stability and predictability, since the interest rate stays the same. The main disadvantage is that you’ll probably end up with a higher mortgage rate, so you might pay more interest over the long term.

Did you know that the 30-year fixed-rate mortgage loan is the most popular loan option among home buyers these days? It’s true. It’s used more often than all of the other lending options.

But why is it so popular? What are the benefits? And are there any drawbacks?

This guide explains the potential advantages and disadvantages of using a 30-year fixed-rate mortgage when buying a home.

What Is a 30-Year Fixed-Rate Mortgage?

As you probably already know, this type of home loan has a fixed rate of interest that does not change, along with a repayment length or “term” of 30 years. As mentioned, it is by far the most commonly used of all the different loan options.

The fixed interest rate is one of the most important features of this particular loan, and also one of its primary advantages. If you use this particular loan product to buy a house, you’ll have the same mortgage interest rate for the full 30-year term (or until you sell or refinance the home).

This feature distinguishes the 30-year fixed-rate mortgage loan from other financing options that have a changing or “adjustable” rate.

In fact, this is one of the first choices you’ll make when choosing a type of home loan: Do you want a fixed or adjustable mortgage rate?

Advantages of the 30-Year Mortgage Option

The 30-year fixed home loan is the most popular mortgage financing option for a reason. Here are the primary advantages that attract borrowers to this particular product.

1. It keeps your monthly payments the same.

The interest rate is one of the key components of a monthly mortgage payment. It’s the first ‘I’ in the acronym PITI, along with principal, taxes, and insurance.

Having a fixed or unchanging mortgage rate means that your monthly payments should stay the same as well, or roughly the same. Long-term payment stability and predictability is arguably the #1 advantage of a 30-year fixed-rate mortgage loan.

This stability helps with long-term budgeting and financial planning as well. By knowing exactly what you’re going to pay each month, year after year, you can better predict how much money you’ll have left over.

2. It eliminates unpleasant surprises.

Adjustable-rate mortgage (ARM) loans have an interest rate that can change every year. This opens the door for unpleasant financial surprises. Your loan can actually get more expensive over time.

But that’s not the case with a fixed-rate mortgage loan.

The advantage of using a “fixed” option is that the interest rate will stay the same for as long as you keep the loan. So there shouldn’t be any unpleasant surprises down the road.

The rate you receive up front is the one you’ll keep for the full 30-year term, or for as long as you keep the loan.

You also have the option to refinance the loan later on, if interest rates drop, and to sell the home when the time is right. But until then, you can enjoy the benefits of a predictable interest rate structure without any surprises.

3. It reduces the size of your monthly payments.

A 30-year fixed-rate mortgage loan can also deliver a smaller monthly payment, when compared to a loan with a shorter repayment term.

This is the result of simple math. By spreading the payments out over a longer period of time, you are effectively reducing the size of your monthly payments. This could free up money for other purposes, such as investing, entertainment, or financial emergencies.

Of course, there’s a downside to this as well. When you spread your payments out over a longer window, you’ll also end up paying more in total interest charges. (More to follow on this.)

Potential Disadvantages to Consider

As you can see, the 30-year fixed-rate mortgage loan offers several important advantages. That’s what makes it America’s most popular financing option.

But there are some potential downsides to consider as well. So let’s explore those next.

1. You’ll probably have a higher interest rate.

If you use a 30-year fixed mortgage loan to buy a home, you’ll probably have a higher interest rate when compared to a shorter-term loan or an adjustable mortgage product. That’s the price you pay for the long-term stability mentioned earlier.

On average, the mortgage rates assigned to 30-year loans tend to be higher than those with shorter terms.

To illustrate this point, here were the average mortgage rates for the 30-year and 15-year mortgages when this article was last updated:

• 30-year fixed: 6.49%
• 15-year fixed: 5.66%

These averages were based on the weekly mortgage industry survey conducted by Freddie Mac. But don’t focus on the exact numbers presented here. Those will have changed by the time you read this guide.

Instead, notice the difference between the average rates. As you can see, the standard 30-year fixed mortgage is more expensive in terms of interest.

2. You could pay more interest over the long term.

Another disadvantage of the 30-year fixed-rate mortgage is that you could end up paying interest over a longer period of time. This will increase the total cost of your loan, when compared to a shorter-term mortgage like the 15-year fixed.

Of course, many people who use home loans end up selling or refinancing long before the term expires. So this might not be a major drawback in all scenarios. It depends on your situation. But it needs to be considered all the same.

As you can see, there is a trade-off here. Like all mortgage options, the 30-year fixed-rate loan has certain pros and cons to consider.

Your monthly payments might be smaller due to the longer term, and they’ll probably never change. But you could end up paying significantly more interest over the long term, especially if you keep the loan for many years.

The takeaway: Mortgage lending is not a one-size-fits-all situation. As a borrower, you must consider the pros and cons of each loan option and choose the one that best supports your goals and financial situation.