The basic instinct of many mortgage borrowers is to get a 30 year fixed loan. A 30 year loan appears to offer the stability and protection that people are looking for. Generally speaking, the longer a loan is fixed for the higher the interest rate will be. A 30 year fixed loan will have a higher interest rate than a 2 year fixed loan. It is important to note that there is a difference between the loan length and the number of years a loan is fixed. A loan can have a loan length of 30 years and be fixed for 30 years. A loan can also have a 30 year length and be fixed for only 2 years. This type of loan is called a 2/28 loan (2 years fixed, 28 years variable, for a total loan term of 30 years). People go for loans with a shorter term fixed option because they have a lower interest rate and therefore a lower monthly payment. This type of option can make sense for some people. Getting a loan that is fixed for 30 years can offer a person a peace of mind. This can be a false peace of mind. People usually don't live in the same property for 30 years. If you sell the property and go somewhere else, you will need to get a new mortgage at the prevailing interest rates at the time. Having a current loan that is fixed for 30 years does not mean you will have the same rate for the next 30 years if you sell the property. Many people will opt for a loan that is fixed for an intermediate term, such as a 5 year fixed or a 10 year fixed. This is a more appropriate planning horizon for many people. It is a rare person in the US who remains in the same property for 30 years. |
