How 30-Year Fixed Loans Work

You’ll pay off your mortgage in 30 years. Although you’ll pay more interest over the life of the loan compared to a 15-year fixed loan, your monthly payments will be lower.

Because your interest rate is locked for the life of your loan, your principal and interest payments won’t change over the life of your loan. The amount for your taxes and insurance can go up and down.

You may have to pay for mortgage insurance, depending on your down payment amount if you’re buying a home or how much equity you have if you’re refinancing.

How 15-Year Fixed Loans Work

You’ll pay off your mortgage in 15 years. Because you’ll pay off the loan faster than a 30-year mortgage, you’ll pay less in interest over the life of the loan.

Because your interest rate is locked for the life of your loan, your principal and interest payments won’t change over the life of the loan. The amount for your taxes and insurance can go up and down.

You may have to pay for mortgage insurance, depending on your down payment amount if you’re buying a home or how much equity you have if you’re refinancing.

What You’ll Need To Qualify For A Fixed Loan

A minimum 3% down payment.
A minimum FICO® Score of 620.
A debt-to-income ratio (DTI) of no more than 50% and steady employment history. Estimate your DTI by adding your monthly debt payments (such as credit card and car payments) and dividing the total by your monthly income before taxes.
Money to cover closing costs, which could be anywhere from 2% – 6% of the purchase price.

30-Year Fixed Loan Benefits

Your monthly payments will be less for a 30-year fixed loan than for a 15-year fixed loan, even though interest rates for a 15-year fixed loan are generally a little lower. That’s because your payments will be spread out over a longer period.
You can pay off your mortgage at any time without prepayment penalties.
You may be able to avoid mortgage insurance with a down payment of 20% or higher.
Your interest rate is fixed for the life of the loan, so you don’t have to worry about rates rising.
You can buy your primary home with as little as 3% down.
You can refinance your primary home for up to 97% of its value.

15-Year Fixed Loan Benefits

You’ll pay off your mortgage faster than with other loans.
You can pay off your mortgage at any time without prepayment penalties.
You may be able to avoid mortgage insurance with a down payment of 20% or higher.
Your interest rate is fixed for the life of the loan, so you don’t have to worry about rising rates.
You can buy a home with as little as 3% down.
You can refinance your home for up to 97% of its value

Mortgage Insurance Requirements

You’ll have to pay primary mortgage insurance (PMI) if your down payment is less than 20%.

This typically costs between 0.5% and 1% of your loan amount per year, spread over 12 payments.
Once you reach 20% equity in your home or when your loan reaches 80% of the original purcahse price, you may be able to request to cancel PMI.
PMI is often automatically canceled once you reach 22% equity from the original purchase price.