On today's blog post, some of the commenters were writing about 30 years mortgages in the U.S.
How do these work?
Typically 30 year mortgages are set at a fixed interest rate that remains fixed throughout the life of the loan. or example, if you buy a $250,000 house with a 20% down payment, you'd have a mortgage of $200,000. The lender gives you options for paying off your loan; one of those options is the 30-year fixed rate.
Rates typically don't vary much between lenders, although that can depend on credit union membership and other factors I can't think of right now. Currently the 30-year rate is 3.75% for typical purchases, and up to 3.875% for "Larger loan amounts in eligible areas". These areas are usually high COL areas; in the US that would include New York City, San Francisco, Washington DC, and other major city areas and their surrounding suburbs.
Are you now committed to the mortgage for the next 30 years? Or can pay it off without penalty?
You can refinance your mortgage if interest rates drop, but yes- you do need to pay your mortgage every month. On prepayment penalties, iamlindoro is correct. Typically there aren't, but lenders are allowed to charge prepay penalties if they want.
And then I think Rebelspy mentioned on another thread that the mortgage holder cannot foreclose on you if the mortgage is underwater. Furthermore, if you walk away from the property, the only recourse the mortgage holder has is to foreclose - he cannot go after you personally beyond the house.
I don't know about this, but I'm inclined to believe OneCoolCat.
In my opinion, the main reason why 30 year mortgages are so popular in the US is because mortgage interest is tax-deductible
(up to a certain income level). The limit is pretty generous, so it can knock off quite a lot of taxable income from your taxes.
Hope this helps!