When you obtain a 30-year fixed rate loan to buy your home or refinance, you’ll make monthly payments based on the interest rate and principal loan amount.
Each monthly payment you make will pay down a portion of your loan balance, which includes interest and principal. As time goes on and your payments lower the balance of your loan, the total cost of interest will also go down.
As a result, an increasingly large proportion of your monthly payment will go towards the loan’s principal.
Compared to a 15-year fixed, you’ll pay more interest over the life of your 30-year fixed rate mortgage. This is because, on a 30-year fixed, the money you borrow accrues interest over a longer time period and, generally, at a higher rate.
However, while the interest rate and total amount of interest you pay will be higher, your payments will generally be much lower than they would be with a 15-year fixed rate mortgage.
Depending on the size of your down payment (if you’re buying a home) or the amount of equity you have (if you’re refinancing), you may need mortgage insurance.
