30 Year Fixed Rate Mortgages Modernized
Tristan Hunt
30 Year Fixed Rate mortgages are now thought of as old
fashioned. We use the words "standard" or "classic" or even
"conventional" to describe one of the most popular loans in
history. You may be surprised to know that the history of the
30 year fixed rate mortgage is not too long, and in fact its
popularity a relatively recent affair. In fact, the 30 year
fixed rate mortgage was introduced during the New Deal of
President Franklin Delano Roosevelt's administration through
the creation of the FHA, or Federal Housing Administration.
Prior to the new deal, mortgages were primarily of the
"balloon" variety, similar in concept to an auto lease. You
could make payments each month for 20 years and still owe the
bank a large lump sum at the end of the loan. More
disturbingly, mortgages made prior to the advent of the 30 year
fixed often had a "call" provision. You may have heard the
expression of a bank "calling" a loan before, even if it was in
an old movie. What this means is, unlike the fixed rate
mortgages of today which have a definite end date, a bank prior
to Roosevelt's FHA could demand immediate payment at any time,
regardless of how many years were left on the loan. If the
borrower could not refinance, they would lose their home to the
bank in a foreclosure. And lose them they did, by the hundreds
of thousands at the very height of the Great Depression.
Roosevelt's administration devised a new concept in banking, a
loan which had a fixed period of time, called a term, during
which a fixed amount of principal and a fixed or variable
amount of interest would be paid back. In full. This new
"fully amortizing" loan consisting of principal and interest
was a major innovation in banking, and resulted in the
explosion of home ownership that we have had in the USA since
World War II.
The availability of cheap, safe home loans with no surprises
may seem old fashioned today, but when we look at today's
market conditions, where interest rates rise daily and the
mortgage industry roils under the burden of hundreds of
thousands of bad loans, old fashioned 30 year fixed rate loans
don't seem like such a bad choice do they?
The problem most borrowers run into when they look to refinance
into a 30 year fixed rate mortgage is that their payments look
like they are going up. And in many cases this can be true,
because not all borrowers qualify for the best rates, and
qualifying for mortgages is harder today than it was five years
ago as lending standards tighten. Whereas 30 year fixed rate
mortgages used to be considered affordable by comparison to
their competition, over the past 20 years they have become
increasingly expensive compared to Adjustable Rate Mortgages.
A newer issue that affects many borrowers seeking to refinance
into the security of a 30 year fixed rate is that they would
have to give up some of the flexibility of their current
Adjustable Rate home loan. This particularly affects borrowers
who are currently in Cash Flow or Payment Option ARM mortgages,
which allow borrowers to defer interest in exchange for home
equity to obtain a dramatically lower minimum payment each
month.
30 year fixed loans are good for a lot of things, but
flexibility has traditionally not been one of them. Until now
that is. New programs have been introduced over the past
several months which combine the safe, secure dependable 30
year fixed rate mortgage with the powerful cash flow options of
ARM mortgages. The result? The 30 Year Fixed Cash Flow
mortgage. Low payments, Fixed Rates, and if you want to hold
on to it for 30 years you'll own the home at the end. They are
incredible loans, allowing you to pay as little as $1100 a month
as the minimum payment on a $500,000 mortgage, while maintaining
a fixed rate for the life of the loan. No nasty surprises, no
nightmares about your mortgage. Just a smart choice made more
affordable, and surprisingly easier to qualify for. Provided
that you have been paying your mortgage on time and have at
least 20% equity in your home, these loans are generally
available with no minimum credit score requirement, and certain
lenders don't even charge an appraisal fee upfront, making
refinancing into a30 year fixed rate mortgage with a cash flow
option one of the easiest, most effective ways to avoid the
high payments you may face if your adjustable rate mortgage's
introductory rate is about to expire.
Bringing old fashioned sensibility to the creative financial
options of today's modern mortgages is a great fit for
borrowers from nearly any walk of life, however it is important
to note that only a handful of lenders currently offer this
program. If your mortgage company cannot help you obtain a 30
year fixed cash flow refinance, feel free to contact us and
we'll try to steer you in the right direction. As always, our
phones and our emails are open to your questions. Until next
time, Live Smart.
About The Author: Tristan Hunt is a seasoned financial
professional with a wealth of experience in the mortgage
industry, advising clients on ARM to Fixed Rate Refinancing &
investor loans. Phone: 800-515-8443 Website:
http://www.FixedRate.RefinanceOne.net
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