On the other hand, a 30-year fixed rate could also result in a slight disadvantage for 30-year fixed-rate mortgage borrowers. The overall interest rate on a 30-year fixed-rate mortgage is much higher because of the longer amortization period. Additionally, because 30-year fixed-rate mortgage payments typically pay interest at the beginning of the loan term rather than principal, borrowers will build equity at a slower rate than a longer-term loan. short term.
The higher interest rates on 30-year fixed-rate mortgages don’t necessarily prevent consumers from taking out this type of loan. One reason is that higher fixed-rate mortgages also increase the amount that can be deducted at tax time. This could potentially reduce or perhaps, in some cases, eliminate their federal income tax liability.