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A fixed rate 30 year mortgage is the most typical loan product sold in today's market.A standard 30 year mortgage has term of 360 months. The mortgage product is offered both in the conventional and government mortgage loan types. Why is the 30 year fixed rate product so popular?It is very popular because of its' amatorization schedule. The loan's payments are split up (P/I) over a length of thirty years which makes the payment lower. This lower required monthly housing expense allows for the borrower to qualify for a larger loan amount and therefore, a bigger more expensive home. Most homeowners either refinance or sell their residence within the first 5 - 7 years.This means that the length of the loan is really not important since they will not occupy the residence for the full life term of the mortgage. The draw back of such a longer termed home loan is that each payment made is mostly interest on the amount originally lent. Until the 15th year of the loan when interest payments reduce and principle becomes the majority of the payment. Items to Watch Out for in a 30 yr mortgage.Many times arm and balloon loans are referred to as a 30 year mortgages, but they are only amatorization over a 30 year term and are NOT the common referred to 30 year fixed rate mortgage. A Balloon 30 year mortgage may have a fixed interest rate at the start but then the loan is due when the balloon gets called. Example: 15/30 balloon at 5.0%The loans monthly payments are based on the mortgage rate of 5% and usually will not change for the 15 years on the loans activity. Each monthly payment amount is determined using the 30 year payment breakdown. HOWEVER, at the end of the 15th year from the first mortgage payment the LOAN IS DUE IN FULL. This means the borrower has to come up with a large lump sum payment or refinance. 30 year arm mortgages are adjustable rate mortgages with the payments broken down over a 30 year period but usually the mortgage will have to be refinanced inoder to be paid off. As stated before, the 30 year mortgage is very popular because it can be used to qualify more people for larger homes/payments. But a borrower needs to be informed and know weather the loan is a fixed rate 30 or a arm 30.
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