Mortgage Products: The 30 FRM

In order to understand the theory behind the fixed ratemortgage, you have to understand the mindset of the mortgage banker and themortgage borrower of thirty or forty years ago. The Great Depression left a tremendous impression on the minds of thiscountry, so much so, that one of the popular mortgage products of the turn ofthe century, the interest only loan, was shelved, never to be heard from again.Not until the recent explosion in real estate prices and the mortgage industriesefforts to accommodate home buyers of all types has there been such mortgagevariety.

The trendafter the depression, through post-war America, and really until the late1990s was the fixed rate mortgage. That's the type of mortgage the bank offered, and the public generallydidn't consider anything else. Why didso many individuals, as well as banking institutions popularize the fixed ratemortgage? This loan type, more than anyother product available, was a security blanket for the banker, and thehomeowner. 

The banker,offering the mortgage loan, was assured of a 20% down payment and a securemonthly payment with a fixed interest rate that would benefit the bank. The homeowner received a set monthly paymentamount that was affordable, and a fixed number of years to repay the loan,usually 15, 20, or 30.

Thisarticle will discuss the 30 year fixed rate mortgage, and the advantagesoffered by the 15 versus the 20 versus the 30 year option. We have really already established the "why"when it comes to the fixed rate mortgage option in general, but we need to lookat now, the term of the fixed rate mortgage. "Why" would you choose the 15, or the 20, or the 30? Well it really depends on two factors: whereyou are in your life, and what you can afford.

Let's sayyou're in your late 40s and the amount of time until retirement is growing evershort; you have your children raised, and your monthly income is nice to lookupon. What option would you take? For most, it is the opportunity to pay forthe home as quickly as possible, thus the 15 year fixed rate mortgage is themortgage of choice

If you'rein your mid-to-late thirties, still quite a long way from retirement, the kidsare almost grown, and your monthly income is substantially greater than it was10 years ago, the 15 or 20 year mortgage would suit your needs. Most often, the homeowner will choose the 20year option, and make principal payments when affordable.

But, if you happen to be in your 20s, with alifetime to pay for your home, not a lot of income, and two children to raisethe 30 year option would get you the house, with as low a monthly payment aspossible. Granted, you will pay more ininterest, but you won't have to pay out quite as much each month. If money is tight, a lower payment can meanthe difference between buying a home and renting a home.

When tryingto decide which mortgage is the mortgage for your situation, you need to have amortgage broker or banker that has an excellent understanding of your financialstatus, your goals and objectives for your mortgage purchase, and your abilityto absorb unexpected expenses or change. All of these factors affect your ability to repay a loan, the choice youwill make on a loan, and the satisfaction you will have during the servicing ofyour mortgage loan. 

Forthese reasons, and others, the fixed rate mortgage, especially the 30 yearfixed rate mortgage is often the mortgage product of choice, especially for theyoung person today, fresh from college, with a starter home, a small family,and a tight budget. Granted, there willbe a greater amount of interest paid out over the life of the loan, but there'salways the opportunity in 10 or 15 years to refinance the loan, and setup biggerpayments, with less interest paid out over the life of the mortgage. After all, the mortgage payment isn't theonly expense associated with homeownership, and all the expense factors must beconsidered; new homeowners certainly do not want a crash course in creditproblems!