30 Year Conventional Mortgage Information

The 30-year conventional mortgage is the most popular mortgage in the U.S.

A 30-year conventional mortgage is a type of loan used to purchase or refinance a property. It is underwritten by Fannie Mae or Freddie Mac, and each has its own guidelines and rules.

Significance

The 30-year conventional mortgage is the most popular mortgage product in the United States. It allows borrowers with solid credit histories to purchase or refinance homes at competitive rates with lower monthly payments than the 15-year option.

Function

Many borrowers select the conventional mortgage option because they have a significant down payment or equity in the home of 20 percent or more. PMI, or private mortgage insurance, is charged to borrowers whose down payment is less than 20 percent.

Considerations

Paying for a home over a 30-year period can add thousands, if not tens of thousands, to the overall cost of the home. One extra payment made each year to a 30-year fixed-rate conventional mortgage can take seven years off the life of the loan by reducing overall interest.

Misconceptions

Many people assume that a 30-year conventional mortgage has to be a fixed-rate product. While a majority are, variable or adjustable-rate mortgages (ARMs) also are available in 30-year conventional products.

Benefits

Purchasing a 30-year conventional mortgage allows borrowers to take advantage of a lower payment and favorable interest rate. With proper budgeting, borrowers can use the lower monthly payment on tight months and then pay extra on other months.

References

• BankRate.com: Differences between FHA and Conventional Mortgages
• AllBusiness.com: Conventional Mortgage
• LendingTree.com: Conventional Mortgage Definition