Mortgage Products: The 20 FRM. Helpful Points to Take Into Consideration

Posted on August 8, 2009
Filed Under Mortgage | Leave a Comment

In order to know the theory behind the fixed rate mortgage, you have to comprehend 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 diversity.

The trend after the depression, through post-war America, and in fact until the late 1990s was the fixed rate mortgage. That’s the sort of mortgage the bank offered, and the public commonly didn’t take into account anything else. Why did so many folks, as well as banking institutions popularize the fixed rate mortgage? This loan sort, 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 the fixed monthly payment amount that was affordable, and a fixed number of years to repay the loan, typically 15, 20, or 30.

This article will discuss the 20 year fixed rate mortgage, and the benefits offered by the 20 versus the 15 versus the 30 year opportunity. 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 select 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 have enough money .

If you happen to be in your 20s, with a lifetime to pay for your house, but 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 cash is tight, a lower payment can mean the difference between buying a house and renting a house.

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

But 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 opportunity would you take? For most, it is the opportunity to pay for the home as fast as possible, thus the 15 year fixed rate mortgage is the mortgage of choice.

A lot of homeowners who acquire a house in their mid-to-late thirties are purchasing their second home; some even have a substantial amount of equity, or down payment for the home. If this is the case, the 20 year fixed rate mortgage, works to an even greater advantage, in that the homeowner has substantial equity, a low monthly payment, and a preset monthly payment amount. The interest is tax deductible, and they are now secure in the knowledge that their home will be wholly paid out prior to retirement.

When trying to make your mind up which mortgage is the mortgage for your situation, you need to have a mortgage broker or banker that has the brilliant comprehension of your financial status, your goals and objectives for your mortgage purchase, and your ability to absorb sudden 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, particularly the 20 year fixed rate mortgage is frequently the mortgage product of choice, particularly for the thirty-something homeowners in our day.

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