The 30-year fixed-rate conventional mortgage is by far the most popular type of home loan in New Jersey and nationwide. In this article, we’ll look at the primary components of this mortgage option, and when it might make sense to use it.
Features of the 30-Year Fixed-Rate Loan
Home buyers and homeowners in New Jersey have a lot of options when it comes to mortgage financing. There are many different loan products available today, and they all have unique features.
The most popular loan option is the 30-year fixed-rate conventional mortgage. But what does this terminology mean to you, as a borrower? Let’s take a look.
Nearly all home loan options are made up of three primary components:
- Loan term — The “term” of the mortgage loan refers to how long you have to repay it. With all other things being equal, a longer term will result in a lower monthly payment since the payments are spread out. As you might have guessed, the 30-year fixed-rate mortgage has a repayment term of 30 years.
- Loan type — Mortgage loans in New Jersey can either be conventional or government-backed. “Conventional” is a term used for home loans that are originated (and sometimes insured) within the private sector, with nogovernment backing. FHA and VA loans, on the other hand, are insured or guaranteed by the federal government. Conventional mortgages are the most common loan type in New Jersey and nationwide, followed by FHA and VA.
- Interest rate type — You also have options when it comes to the rate structure of your home loan. The rate can either be fixed or adjustable. An adjustable-rate mortgage (ARM) can change over time, with the interest rate either rising or falling depending on market conditions. A fixed mortgage, on the other hand, generally stays the same over time. There are also “hybrid” ARM loans that start off with a fixed rate for the first year, or several years, and then change annually thereafter.
So now we’ve broken down the primary components of a 30-year fixed-rate conventional mortgage, the most commonly used loan option among New Jersey borrowers. It is a product that has:
- A fixed interest rate that does not change
- A repayment window or “term” of 30 years
- And no government backing or insurance
Is It the Right Mortgage Option for You?
A lot of borrowers in New Jersey choose the 30-year fixed-rate conventional loan. But is it the best type of home loan for your situation? That depends.
People typically choose this financing option for the following reasons:
- With a 30-year loan, the payments are spread out over a longer period of time. So the monthly payments are lower than they would be with, say, a 15-year mortgage option. This appeals to borrowers whose top priority is to minimize their monthly payments.
- The 30-year fixed-rate mortgage also provides more long-term stability and predictability, when compared to an ARM loan. This also appeals to a lot of borrowers.
Long-term fixed mortgages tend to have higher interest rates (on average) than adjustable loans. But for many borrowers, the benefits of having a smaller payment and an unchanging rate outweighs this cost difference.
Have questions? Please contact us if you have questions about the different mortgage options available in New Jersey. We can help you choose the right product based on your individual needs and priorities.