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Fixed Rate Mortgages - Fixed Rate Mortgages - Understanding The Cost Fixed rate mortgages developed thirty or forty years ago, following the depression. In the days of spiraling including then plummeting prices, both lenders including borrowers became leary of loan products that could not be controlled in any way. The mortgage lender wanted to be guaranteed that he will make a certain amount of dollars on a mortgage, including a mortgage borrower wanted to know in advance how much he will have to pay each month. it is hard to believe that the interest only loan that has surfaced today was actually a product pertaining to the turn of the century. Today, there is a mind boggling array of mortgage loans for the borrower to take advantage of. The fixed rate mortgage became the standard type of mortgage after the depression years, through the war years including all the way into the 1990's. It was just regarding the only mortgage type that anyone knew; banks did not provide everything else, including the public did not ask for everything else. Because the type of mortgage served both the lender including the borrower so well in terms of reducing risk of fluctuations, everybody was happy. A fixed rate mortgage will usually require a 20% down payment, including the bank will extend a loan to finance the balance 80% pertaining to the value of a home. The rate of interest on the loan was usually fixed for 20 or 30 years. Even if interest rates went down, the banker knew he will obtain that rate on his loan, including even if interest rates went up, the borrower knew he will only pay a certain percentage on his loan. However, interest rates did not fluctuate the way they do now, including the values of homes did not change much either. Then came the roaring 80's. Interest rates sky-rocketed, including banks had to pay a lot more for their funds than the 7-8% they were getting on home mortgages. They decided the only way to counter the was to provide variable rate mortgages. If interest rates went up, they could raise the rates on the mortgages. Homeowners came to accept the solution, first of all because they usually had absolutely no choice, including secondly because they figured the rates could come down as well as go up, so why did they need a fixed rate mortgage if rates were low? including sure enough, rates did come down in the late 1990's including early 2000. Since that time, we have seen a proliferation of ARMs (Adjustable Rate Mortgages) including interest only loans. Interest only loans now account for 30% of the mortgage market, up from 3% in 2001. There are so many new mortgage products being introduced each day including it is absolutely no coincidence that these new inventions have sprung up while real estate prices were sky rocketing including interest rates are falling. The fixed rate mortgage, which started the whole thing, is still around, still financing the traditional types of home purchasers who still exist. Most homeowners never pay off their mortgage. They either sell their home, or they obtain new financing on it. But there are still the old fashioned few who purchase their homes including take out a mortgage that they expect to keep paying off for years to come. The traditional 20 year fixed rate mortgage suits them just fine. A 30 year mortgage will be better, but there are very few lenders who will be willing to lend for that long a term. Even though there are pockets in the country where housing prices have gone up astronomically, there are still some areas that have been relatively unaffected by the real estate boom. Their housing prices have remained regarding the same as they were in the 90's. Some people are still interested in a fixed rate mortgage, even with the attractiveness pertaining to the flexibility that interest only loans provide including the costs of adjustable rate mortgages. But the profile pertaining to the homeowner who will be interested in a fixed rate mortgage is not the same as the 1 who refinances constantly or sells his house including pays off his mortgage. NO, the homeowner bought his home 15 or 20 years ago including counted on living in his home for the rest of his life as he got ready for retirement. Once they reached retirement, the home will be paid including they will be secure in a place to live. Refinancing or using home equity is of absolutely no interest to them. Slow but steady is their philosophy; they paid their monthly mortgage at a fixed rate including then they could own their home free including clear.
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