Mortgage guide
A 30-year fixed-rate mortgage spreads your loan over 360 monthly payments, and the interest rate never changes. That makes the principal and interest part of your payment the same from the first month to the last, which is why it's the most common home loan in the country. The tradeoff is that you pay more total interest than you would on a shorter loan, and you build equity more slowly in the early years. It fits buyers who want a smaller steady payment and the most room in their monthly budget.
If you ask most people what a mortgage is, they'll describe a 30-year fixed without knowing it. Same payment every month, for 30 years, and then the house is yours.
It's popular for a reason. But "popular" doesn't mean "right for everyone," so let's look at how it actually works and when a different loan might serve you better.
You borrow a set amount, and the lender sets an interest rate that's locked for the life of the loan. Your payment is figured so that, if you make every payment on time, the loan is paid off in exactly 30 years.
The part of your payment that goes to the loan, called principal and interest, never changes. In year one and year 29, it's the same number.
Most payments also include money for property taxes and homeowners insurance, held in an escrow account. Some include mortgage insurance. Those costs can go up or down, so your total monthly payment can change even though your rate doesn't.
Amortization is just the schedule for paying the loan down.
Each month, interest is figured on what you still owe. In the early years, you owe the most, so most of your payment goes to interest and a small part goes to principal. As the balance shrinks, less goes to interest and more goes to principal.
Think of it like pushing a car that's stuck. The first few shoves barely move it. Once it starts rolling, each push does more. By the last few years of a 30-year loan, most of each payment is going straight to principal.
That's why paying a little extra early has an outsized effect, and why selling or refinancing in the first few years means you've paid down less than people expect.
A 15-year fixed works the same way, but the loan is paid off in half the time. That means:
The 15-year fits people with strong, steady income who want the house paid off sooner. The 30-year fits people who want a lower required payment and more breathing room. Read more on the 15-year fixed-rate mortgage.
Here's a middle path a lot of people like: take the 30-year for the lower required payment, then pay extra when you can. You get the flexibility without locking yourself into the higher payment.
An adjustable-rate mortgage, or ARM, usually starts with a fixed rate for a set number of years, then adjusts with the market. The starting rate is often lower than a 30-year fixed, but the payment can go up later.
An ARM can make sense if you're confident you'll sell or refinance before the fixed period ends. The 30-year fixed makes more sense if you plan to stay and want certainty. Read more on the adjustable-rate mortgage.
Extra payments go straight to principal, which cuts the interest you pay and shortens the loan. A few common ways to do it:
Before you start, check two things. First, make sure the extra money is marked as principal. Second, make sure your loan has no prepayment penalty. Federal rules limit prepayment penalties to certain fixed-rate loans in their first three years, but read your note to be sure.
And keep an emergency fund. Money you've paid into your house is harder to get back out than money in the bank.
If rates drop or your situation changes, you can refinance. People refinance to lower their rate, shorten their term, remove mortgage insurance, or take cash out. Refinancing has costs, so it should save you more than it costs over the time you plan to stay. See Refinance.
On a conventional loan with private mortgage insurance, you may also be able to remove the mortgage insurance once you've built enough equity, without refinancing.
Because it combines a predictable payment with the smallest required payment of the common fixed-rate options. That makes homes more affordable month to month.
Your principal and interest can't. Your total payment can, if your property taxes, homeowners insurance, or mortgage insurance change.
Not necessarily. What matters is whether the payment fits your income for as long as you plan to stay. Buyers 62 and older can also compare a regular mortgage with a HECM for Purchase.
It depends on how long you'll keep the loan. Points cost money now and save money each month, so they pay off only if you keep the loan long enough. Ask your loan officer to show you the break-even point.
Usually, yes. Most loans let you pay extra or pay the loan off without a penalty.
They depend on your credit, down payment, loan type, and the day your loan is priced. Get a personalized rate quote.
If you're buying, start with your buying power. See your buying power or book a call, and we'll show you a 30-year and a 15-year side by side, so you can see the real difference in your payment and total cost. See Buy a Home for the full process.
