Mortgage Products: The 30 FRM

Author: Tony Robinson

In order to understand the theory behind the fixed rate mortgage, you have to understand the mindset of the mortgage banker and the mortgage borrower of thirty or forty years ago. The Great Depression left a tremendous impression on the minds of this country, so much so, that one of the popular mortgage products of the turn of the 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 industries efforts to accommodate home buyers of all types has there been such mortgage variety.

The trend after the depression, through post-war America, and really until the late 1990s was the fixed rate mortgage. That's the type of mortgage the bank offered, and the public generally didn't consider anything else. Why did so many individuals, as well as banking institutions popularize the fixed rate mortgage? This loan type, more than any other product available, was a security blanket for the banker, and the homeowner.

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

This article will discuss the 30 year fixed rate mortgage, and the advantages offered 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 look at 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: where you are in your life, and what you can afford.

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

If you're in your mid-to-late thirties, still quite a long way from retirement, the kids are almost grown, and your monthly income is substantially greater than it was 10 years ago, the 15 or 20 year mortgage would suit your needs. Most often, the homeowner will choose the 20 year option, and make principal payments when affordable.

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

When trying to decide which mortgage is the mortgage for your situation, you need to have a mortgage broker or banker that has an excellent understanding of your financial status, your goals and objectives for your mortgage purchase, and your ability to absorb unexpected expenses or change. All of these factors affect your ability to repay a loan, the choice you will make on a loan, and the satisfaction you will have during the servicing of your mortgage loan. For these reasons, and others, the fixed rate mortgage, especially the 30 year fixed rate mortgage is often the mortgage product of choice, especially for the young person today, fresh from college, with a starter home, a small family, and a tight budget. Granted, there will be a greater amount of interest paid out over the life of the loan, but there's always the opportunity in 10 or 15 years to refinance the loan, and setup bigger payments, with less interest paid out over the life of the mortgage. After all, the mortgage payment isn't the only expense associated with homeownership, and all the expense factors must be considered; new homeowners certainly do not want a crash course in credit problems!

About the author: Tony Robinson is a Real Estate Investor, Webmaster and International Author. Visit http://www.ezy-mortgage.com/ for his tips on mortgages.