For many homebuyers, choosing a 30-year mortgage can be a strategic financial decision. When you have 30 years to pay off that loan, it can make homeownership more accessible and less burdensome every month.
While there are setbacks to this loan structure, there are also many benefits of 30-year mortgages that are worth considering. Here are 10 key advantages that might make a 30-year mortgage option the better choice for new homebuyers.
1. Lower Monthly Payments
The most obvious benefit of a 30-year mortgage is lower monthly payments. In this type of mortgage, the loan amount is amortized over a longer period, which means the interest expense is paid for the period while the remainder of the payment is put toward reducing the principal amount.
Lower payments each month can make homeownership more attainable for buyers with moderate incomes. The good news is you can pay off a 30-year mortgage like a 15-year mortgage if you have it in the budget.
2. Improved Cash Flow
With lower monthly payments, homeowners often have more money to spend when they choose a 30-year mortgage. They can manage their monthly expenses more comfortably and maybe even have it in the budget for vacations.
This financial flexibility can be particularly beneficial for young homeowners who are still building their careers. It’s especially nice for anyone with significant expenses like car payments or student loans.
3. Opportunity to Invest
Because you have more money each month, you may have wiggle room for other investments. All your money isn’t going toward a liquid asset, so maybe you can experiment with ways to earn more than you pay in mortgage interest.
More than 120 million Americans currently rely on mutual funds according to the Investment Company Institute. This type of investment among others can offset the cost of borrowing over time.
4. Tax Deductions
If you review IRS guidelines, you’ll see that interest paid on a 30-year mortgage is tax-deductible. In other words, you will get some of that money back at tax time each year.
Ultimately, you can reduce the amount of income tax owed each year by claiming it on your taxes. This tax benefit can make a significant difference in the overall affordability of the mortgage, particularly in the early years.
5. Greater Buying Power
Realtors are more attracted to clients who take out a 30-year mortgage. These homebuyers can afford a more expensive home right upfront than they might otherwise be able to buy with a shorter-term loan.
This can be crucial in high-cost real estate markets. Entry-level prices are steep, so if you can afford to spend more, you’ll have better luck finding your dream home.
6. Stability and Predictability
A fixed-rate 30-year mortgage offers stability over the long term. Homeowners know exactly what their payments will be for the duration of the loan.
Predictability with payments makes budgeting easier, especially for people who have kids and other commitments. The stable payments provide a sense of financial security.
7. Flexibility to Refinance
Keep your eyes on interest rates. You can possibly refinance a 30-year mortgage down the line, paying less interest per month. Refinancing may also mean that you’re shortening the loan term. You also have the flexibility to switch from an adjustable rate to a fixed-rate mortgage down the line.
8. Equity Building
While equity builds more slowly with a 30-year mortgage compared to shorter terms, it still happens gradually over time. As you pay down the principal, your equity in the home will significantly grow.
This equity can be useful for future financial needs. For instance, if you need to fund home improvements, then you can use the equity toward those projects. Equity also serves as collateral for other loans.
9. More Funds for Home Improvements
Did you buy a fixer-upper? With lower monthly payments, you’ll have more money in the bank to invest back into their property.
Putting in hardwood flooring, renovating the kitchen, or simply just painting the walls makes your home more attractive when you want to sell it later. Use the extra money you have each month to increase the market value of your home.
10. Accessibility to Homeownership
30-year mortgages make it possible for you to buy your first home. When the monthly payments are more affordable, a wider range of people from all economic classes can afford to take out the loan.
This accessibility is crucial for building personal wealth and achieving financial stability for many families. It also creates more well-rounded communities around the country.
Enjoy the Next 30 Years
New homeowners often turn to the 30-year mortgage due to its flexibility. This type of loan is attractive to people who want to enjoy homeownership, but need stability and more funds in the bank each month.
As with any significant financial decision, it’s important to consider your goals and lifestyle when deciding on the right type of mortgage for you. A 30-year mortgage may just be the right decision!
Read More:
What to Do If Paying for Your Mortgage Becomes a Struggle
Don’t Pay Off Your Student Loans!
Alyssa Serio has been a writer and editor since graduating from Aurora University in 2014. In her free time, she loves reading, playing volleyball, and watching any horror movie (even the bad ones) with her husband.