30 year fixed home loan

What Is a 30-Year Fixed Loan?

When you borrow money, it is important to identify three key details immediately -- the loan principal, which is the amount you want to borrow; the term, in years or months; and the interest rate. One common lending offer you may find is a 30-year fixed loan. Understand all of the details before you sign paperwork and close on this type of lending agreement.

What Is a Fixed Loan?

A fixed loan is an arrangement where the interest rate remains at the same level for the entire term of the loan. A fixed loan is usually a better choice than a variable one, which changes over time, especially when rates are very low, because you don't have to worry about the interest rate jumping at some point in the future. Thus, a loan that is fixed for 30 years keeps the same interest rate and monthly payment for the 360 month duration of that loan term.

Most Common Application

The most common application for a 30-year fixed loan is a home mortgage agreement. The 30-year fixed-rate mortgage loan is the most common choice for homeowners over other mortgage programs. The mortgage loan debt amortizes as the value of the home climbs, ideally, which often leaves the homeowner with increasing equity, or profit, in the house. Amortization is the distribution of interest and principal in each mortgage payment -- each month, the borrower pays more toward principal (the amount borrowed) and less toward interest.

Benefits and Downsides

Examine both the benefits and downsides of this type of loan. Lenders offer 30-year loans to keep payments manageable when you have a large principal balance, as is the case with a mortgage loan. The longer the term, the lower the payment. However, signing up for a 30-year loan also has disadvantages -- for one, you pay more in interest over the loan term compared to a short-term loan.

Suggestions

Before deciding on a 30-year loan, examine the terms of the loan carefully. Some mortgage companies may add a pre-payment penalty clause to the agreement, which requires borrowers to pay an additional fee if they attempt to pay off the loan before 30 years elapses. Also, do not confuse balloon loans with fixed-rate loans. In balloon loans, the payment amount remains the same over the term, but the mortgage company bills the borrower a large lump-sum payment at the end.


We at Ameristar.us can offer you free advise on what types of loan is best for you. Please contact us today for a meeting or call us and we will answer all your questions. Thank you