A 30-Year Mortgage On A Home. Whose Brilliant Idea Was That?
A 30-Year Mortgage On A Home. Whose Brilliant Idea Was That?
Interestingly it was the government that came up with the idea of encouraging home ownership for all Americans and using the now classic 30-year mortgage to help.
The plan was that the payments would be low enough over the long term of the loan and allow people who did not have a lot of income to buy homes over time.
And it worked. Home ownership nearly doubled between the 1930’s and now.
But a 30-year mortgage is expensive for home buyers. The first 10 years of the loan payments go mostly toward interest. It’s set up to make bankers happy, and they are very happy to issue these loans to people. They make big money. The next 10 years actually net the homeowner a small amount of equity. And the last 10 years actually go more toward equity than interest. Over the life of a typical 30-year mortgage, you will pay double the price of the home.
Another danger for 30-year mortgages is they make it easy for homebuyers to get in over their head as seen in the recent financial meltdown.
But these days many homeowners are expecting to move up to another, bigger house within a few years. Or they may be on the corporate transfer career path, though that is much more rare than it used to be in this country. Corporations do not want to keep many employees from school days to retirement. They want to keep employee costs down and they do it by laying people off not transferring them.
But families still move into bigger houses and get another 30 year fixed rate or adjustable rate mortgage that has them strapped for cash and hoping they don’t get laid off from work.
And another risk lurks for the unwary. How old will you be when the mortgage is finally paid off? And what kind of condition will the structure be in at that time. Many homes need repair and remodeling every 8 to 10 years. And if you need to sell anytime in the term of the loan you will have to repair and stage your home to appeal to the tastes of the current crop of buyers.
What if you didn’t have so many demands on your hard earned dollars?
For homeowners who want to buy a home and pay it off faster other loans might offer significant advantages to homeowners.
Some of us are not interested in a 30 year, fixed rate mortgage. We want to pay off that obligation quickly and stay in one place for most of our lives.
Some of us are not interested in paying interest for anything, including homes and credit cards. It raises the cost of everything we buy, maybe to levels where we sacrifice our personal freedom. Stuff just isn’t worth becoming a slave to lenders.
You can get mortgages for shorter periods of time and lower interest. You can also avoid prepayment charges and a lot of other expenses banks want to charge you.
You can put down a substantial down payment. You can buy abandoned city buildings and pay with sweat equity rather than a 30 year fixed rate mortgage on the perfect dream home that makes you a bank slave.
Look for alternatives.
These days most people who want to buy a home have to go to banks for loans. It’s a risky and confusing business. The words are confusing at best when you look at all those papers. A closing package, the papers you have to sign to get a loan, can run between 30 and 60 pages of legalese. You can’t really know what you are signing. That’s the way the money guys want it.
Demand to see the papers and have your own lawyer look them over before you get to the signing table. And get a loan you can afford even if you end up unemployed. You’ll be glad you did.
15 Year Mortgage Vs 30 Year Mortgage
Category: Rates
