10 15 30 40 and 50 Year Mortgages: A Comparison

Comparing Terms of Fixed-Rate Home Loans

On a fixed rate mortgage, the interest rate remains the same through the entire term of the loan, rather than the interest rate doing what is called “float” or adjust. What characterizes a fixed rate mortgage is the term of the loan and its interest rate. There are a number of popular mortgage loan terms: 50 year fixed rate, 40 year fixed rate, 30 year fixed rate, 15 year fixed rate, and 10 year fixed rate.

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30 Year Fixed Rate Mortgage

The traditional loan is the 30-year fixed rate mortgage. This is the most popular loan for those buying homes for the first time and even those who own more than one home. The 30-year fixed home loan fits more financial situations than any other home loan. This loan program also allows the homebuyer to have low monthly payments without paying large amounts of interest over the life of the loan. The rate is also fixed and will never change during the life of the mortgage. That makes this loan the perfect choice for future homeowners.

Highlights of the 30 year fixed rate mortgage are:

  • If the homebuyer chooses to increase their monthly payments, they can increase the equity that is in their home.
  • There are usually no pre-payment penalties with a 30-year fixed rate mortgage.
  • The low payments allow the homebuyer to use their extra money for investing and on other expenses.

15 Year Fixed Rate Mortgage

A 15-year fixed rate mortgage allows the homebuyer to own their home free and clear in a 15 year period. While the monthly payments are a little higher than a 30-year mortgage, the interest rate on the 15-year mortgage is a little lower most of the time. The homebuyer also pays less than half of the total interest of the traditional 30-year mortgage. A 15 year fixed rate mortgage allows younger homebuyers with the income to meet the higher monthly payments to pay off the house before their children enter college. This kind of mortgage allows them to own more of their home faster with this mortgage. Homebuyers who are established in their careers tend to have higher incomes and they desire to own their homes before they retire. These are the types of people who may prefer this kind of mortgage.

Some advantages of the 15 year fixed rate mortgage are:

  • The homebuyer owns their home in half the time it would take them to own it through a traditional mortgage.
  • The homebuyer saves more than half of the amount of interest paid in a 30-year mortgage.
  • Lenders usually offer this type of mortgage at a lower interest rate than the interest rate of a 30-year loan.

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Other, Less Common Loan Terms

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10 Year Fixed Rate Mortgage

A 10-year fixed mortgage has an interest rate that never changes throughout the 10 year loan period. Initially, the principal amount is reduced and then it moves at an accelerated pace throughout the loan period. The 10 year fixed rate mortgage is essential for those individuals with high income who want to pay the least amount in fixed interest for their home as possible. This allows for quick payoff of the mortgage, but as a result they have higher monthly payments. For those who can afford these types of payments, it can be a very smart move since hundreds of thousands of dollars can be saved in interest. Nationally, 7.000 percent is the highest rate on a 10-year fixed mortgage.

Highlights of a 10 year fixed rate mortgage are:

  • High monthly payments can save the most money in the long-run.
  • Regardless of changes in the market, the rate is fixed for 10 years.
  • For those who have a high enough income, a 10-year fixed rate mortgage can pay off the home in 10 years or less.

40 Year Fixed Rate Mortgage

40-year mortgage rates are usually slightly higher than the traditional 30-year fixed mortgage, but the monthly payment tends to be lower due to the extended term. This loan is a good alternative for borrowers who do not desire to have an adjustable rate mortgage but still wants or needs the low monthly payment that only comes with this extended term loan program. Customers pursuing the 40-year home loan are the ones who are looking for one of two things. They are either searching for a lower payment that allows them to afford a more expensive house, or they simply want a lower payment without having to sign up for an adjustable rate mortgage.

Highlights of the 40 year fixed rate mortgage are:

  • The term is fixed for a period of forty years no matter the changes in the market.
  • The potential for lower payments is greater than the potential of the 30-year fixed home loan.
  • Purchase a larger home than what can be afforded with a traditional 30 year loan.
  • Low payments leave extra money for other expenses.

50 Year Fixed Rate Mortgage

The 50-year fixed mortgage loan is quite different in that it is like a 30-yar fixed mortgage with what is called a 50 year amortization period. A 50-year fixed rate mortgage allows the homebuyer to pay toward the principal in the beginning and this can fit pretty much anyone’s budget. People who wouldn’t normally be able to afford a home can most likely do so with this kind of loan program.

Highlights of the 50 year fixed rate mortgage are:

  • Payments are based upon a 50 year amortization schedule
  • Renters can become homeowners because those who would normally not be able to afford a home can do so with this particular loan program.
  • These loans are good for those with fair or bad credit
  • The low payments allow the homebuyer to use the extra money for other investments or other important expenses.

The one and very obvious disadvantage that accompanies this loan is that the term is so long. Half of those buying homes for the first time are aged 32 or older, according to research by the National Association of Realtors. If these buyers choose the 50-year mortgages and they never refinance or make extra payments, they will not pay off their home loan until they are well into their 80’s.