4 Reasons a 30-Year Mortgage Makes Sense in 2021

by Maurie Backman | Updated July 19, 2021 - First published on Jan. 30, 2021

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Applying for a home loan this year? Here's why you may want to go with a 30-year term.

If you're looking to apply for a mortgage this year, you have options. You can ask for a 30-year loan that you'll back pay in 360 equal installments. Or you can apply for a loan with a shorter term, like 15 or 20 years, and pay your home off sooner -- you'd also save money on interest overall. There are plenty of good reasons to get a 15- or 20-year loan, but here's why a 30-year mortgage makes a lot of sense right now.

1. Rates are very low

Even though 30-year mortgage rates are higher than the rates you'll pay for a 15- or 20-year loan, they're still sitting near historic lows. As of this writing, the average 30-year mortgage rate is 2.859%. That would cost you $413.88 a month in principal and interest for each $100,000 you borrow. It's an excellent deal, so if you think swinging a higher monthly mortgage payment with a 15- or 20-year loan will be a stretch, it pays to opt for a longer term.

2. There's economic uncertainty

Though the housing market is booming right now, the economy isn't. Quite the contrary -- the pandemic means millions of Americans are still out of work, and uncertainty abounds as coronavirus cases continue to multiply. As such, it may be safer to go with a lower monthly mortgage payment, which you'll get with a 30-year loan. Shorter mortgage terms will cost you less overall, but the monthly payment will be higher. If you lose your job or your hours get cut, which is happening to a lot of people these days, you'll have an easier time keeping up with your housing costs if you keep the payment low.

3. You may want to catch up on other goals

A lot of people fell behind on their financial goals in 2020. If you paused your retirement plan contributions or only made minimum payments on your credit card balances, you may be eager to get back on track. And a lower monthly mortgage payment will allow for that. Spending less on your home will free up money each month for other important things.

4. You can always pay off your mortgage ahead of schedule

Just because you sign up for a 30-year mortgage doesn't mean you have to take that long to pay it off. Very few home loans come with a mortgage prepayment penalty these days, so you can always make higher payments when you're able to swing them. That extra money will go toward your loan's principal so can knock out your mortgage sooner, all the while saving yourself money on interest. And this way, you get the option to pay your loan off sooner without locking in a higher monthly payment that could trip you up during periods when life gets more expensive.

There are plenty of good reasons to apply for a 15- or 20-year mortgage, but a 30-year loan could be a better choice right now. You will have to pay a higher interest rate on your loan if you opt for a 30-year term. But you'll benefit from more flexibility and the opportunity to do other things with your money.

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