30-Year Mortgage: What Is It And Is It Right For You?

You can choose from several mortgage types when financing the purchase of a home. That includes adjustable- or fixed rate mortgages at various term lengths – the number of years it takes to pay them back.

One of the most popular types of home loans is the fixed-rate, 30-year mortgage.

Upsides And Downsides Of A 30-Year Mortgage

As with all mortgage types, there are both positives and negatives associated with a 30-year, fixed-rate mortgage.

How Are 30-Year Mortgage Rates Determined?

Your 30-year mortgage’s interest rate is determined by a variety of factors, both those outside and within your control.

Here are some of the key factors that lenders will use when determining your mortgage’s interest rate.

Credit Score

Your three-digit FICO^® credit score is a key number in determining your interest rate. This number, which ranges from 300 to 850, indicates how well you’ve paid your bills and managed your debts.

Most lenders consider FICO^® Scores of 800 or higher to be excellent ones and scores of 740 to 799 to be very good. If your FICO^® Score is in these ranges, you’re more likely to qualify for a mortgage loan with the best rates and terms.

You can build a strong FICO^® credit score by paying your bills on time each month and paying down as much of your credit card debt as you can.

Debt-To-Income Ratio

Your debt-to-income ratio (DTI) is another key factor in what interest rate you’ll eventually get. This ratio measures how much of your gross monthly income – your income before taxes are taken out – that your recurring monthly debts consume. Most lenders want your monthly debts, including your new mortgage payment, to equal no more than 50% of your gross monthly income, depending on your loan.

Not all your monthly payments are part of your DTI. Lenders don’t consider utility payments or grocery expenses, but do consider recurring payments such as your mortgage, auto, student and personal loan payments to be part of your debt-to-income ratio. They also consider the minimum you must pay on your credit card debt each month.

The Economic Climate

One factor in determining your loan’s interest rate is beyond your control: the state of the economy. Certain economic events can cause mortgage interest rates to rise. For instance, when the Federal Reserve Board raised its benchmark interest rate, mortgage interest rates rose, too.

The economy can also cause interest rates to fall. During the COVID-19 pandemic, mortgage interest rates fell to historic lows.

Consumers’ behavior had no bearing on either of these periods of rising or falling interest rates.

30-Year Fixed Mortgage Vs. Adjustable-Rate Mortgage

The two main types of home loans are fixed-rate and adjustable-rate mortgages.

In an adjustable-rate mortgage, your interest rate can change over time. This means that your monthly mortgage payment could change, too.

When you take out an adjustable-rate mortgage, often called an ARM, you’ll typically get an initial interest rate that is lower than what you’d get with a fixed-rate loan. That initial rate remains fixed for a set period, usually 5 – 7 years.

After the fixed period ends, your ARM enters its adjustable period. During this time, your interest will rise or fall usually once a year depending on whatever economic index your loan is tied to. Typically, your mortgage’s interest rate will increase once the adjustable period begins. This will boost your monthly payment, so you need to make sure that you can afford this higher payment once your loan leaves its fixed period.

Many borrowers with ARMs plan on selling their homes or refinancing their loans before they enter their adjustable period.

30-Year Mortgage FAQs 

Do you still have questions about 30-year mortgages and how they work? Here are answers to some of the most common.

Should I get a 30-year mortgage?

Everyone’s situation is different, but a 30-year, fixed-rate mortgage is usually a good choice if you want the lowest possible monthly payment. You’ll pay less each month because you are spreading out your payments over so many years.

On the negative side, longer-term loans like a 30-year mortgage are more expensive over time because you’ll pay more in interest. If you are more interested in paying as little as possible for a mortgage and you can afford a higher monthly payment, then you might choose a 15-year or other shorter-term loan.

How can I shorten my loan term?

Even if you take out a 30-year fixed-rate mortgage, you can shorten the number of years it takes to pay off your loan. One way to do this is by making biweekly payments instead of a monthly payment.

Instead of paying, say, $2,000 a month, you might pay $1,000 every 2 weeks. Because some months are longer than others, you’ll make the equivalent of 13 monthly payments every year when you pay on a biweekly schedule. That will help you pay down your mortgage balance at a faster pace.

What’s the current 30-year fixed mortgage rate?

Mortgage interest rates change often. But for the week ending March 21, 2024, Freddie Mac reported that the average interest rate on a 30-year, fixed-rate mortgage stood at 6.87%. During the 52 weeks before this, this average was 6.89%.

How do I know when mortgage rates will go down?

Unfortunately, there is no way to accurately guess when mortgage interest rates will rise or fall. Trying to time interest rates is no easy task. It’s best to jump into the homebuying market when you are ready to make a move, no matter what is happening with interest rates.

Is a 30-year mortgage better than a 15-year mortgage?

No mortgage type is inherently better than any other. It depends on your financial situation. If cash flow is an issue, a 30-year mortgage might make sense because it comes with a lower monthly payment. If you are focused on paying as little interest as possible, a shorter-term 15-year mortgage might make more sense.

How do I get the best 30-year mortgage rate?

If you want the lowest interest rate on your loan, build a strong FICO^® credit score and pay off as much of your credit card and other monthly debts as you can. Make your monthly payments on time, too. These actions will make you less of a risk and boost your odds of nabbing a lower interest rate.

The Bottom Line

A 30-year, fixed-rate mortgage isn’t the best choice for all home buyers, but for those looking for the lowest monthly payment, this loan type is a good fit. If you’re ready for a mortgage loan, apply online today with Rocket Mortgage^® to start the approval process.