WHAT A DEAL! – 11/1/2012

A 30 year fixed-rate mortgage hasn’t always been the standard.  As part of FDR’s NEW DEAL in 1934, the Federal Housing Administration was created to help Americans purchase homes with affordable terms.  Prior to then, many loans had an amount due at the end of the term called a balloon.  Most mortgages had adjustable interest rates, even though some might be fixed for a short term.  While banks would loan money on a home, they retained the right to call the note due at any time putting stress on borrowers.  FHA, during this time, introduced mortgages that offered a fixed rate of interest to the borrower for a 30 yrs term.  This fully amortized loan provided borrowers a financial vehicle that would help them achieve the AMERICAN DREAM while minimizing the risk of have a loan called without the resources to pay it off.  It brought long term stability to the house market and helped stimulate the economic recovery at a difficult time in U. S. history.  Roughly, 1/3 of the mortgages created in 2011 were less than 30 year terms.  Many homeowners want to get their mortgages paid off as quickly as possible, so shorter term mortgages with a lower interest rate, but higher payments due in fewer years to amortize the mortgage, accomplishes this.