Thirty Year Fixed Mortgage
The thirty year fixed rate mortgage was the traditional home-buying financial arrangement for several decades. The loans that our parents took out to purchase homes were thirty year fixed mortgages. Some came through the FHA, founded in 1934; some were Veterans Administration loans that required no down payment. But all were thirty year fixed mortgages.
Today, the thirty year fixed is just one of many choices for a home purchase. The recent rise in home prices has made the adjustable rate mortgage a popular choice because the initial low rates make it possible for new home buyers to maximize their investment and purchase a home that they would not be able to buy with a thirty year fixed mortgage.
The adjustable rate option carries its share of risks, however. After the initial period of low rates, the interest rate - and the mortgage payment - change every year. With a thirty year fixed mortgage, you'll be making the same monthly payment for thirty years. Recently the gap between adjustable rates at the beginning of a mortgage and the available rates for thirty year fixed rate mortgages haven't been all that far apart - half a percent or less.
One of the major issues for people who would prefer a thirty year fixed mortgage is the fact that most lenders won't provide them unless the buyer has a down payment of 20%. The 80/20 or "piggyback" loan has become a popular solution to this problem. The borrower scrapes together whatever he/she can for a down payment and borrows whatever is needed to make a twenty percent down payment. He/she then takes out a thirty year fixed with a twenty percent down payment that is at least partially borrowed money. Often the same lender provides both loans.
The thirty year fixed is a good loan choice for people who are buying their home to live in. Over the last six or seven years, many home buyers were purchasing as much house as possible with one of the adjustable rate mortgages in order to sell it shortly thereafter and take advantage of the rocketing home values.
For people interested in home speculation, an adjustable rate mortgage makes sense because the plan is to sell the home before the interest rate adjusts. For those who plan to be in the home for ten years or more, a thirty year fixed mortgage probably has greater appeal because it is a fixed cost and there is no question of rising interest rates impacting the monthly payment. Even if it requires a piggyback loan (which will be an adjustable rate loan) the stability of a thirty year fixed can have enormous appeal. Interest rates are maintaining very low levels; a thirty year fixed rate mortgage can be had at a very reasonable rate today if your credit rating is of decent quality.