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mortgage Products: The 20 FRM

Written by: 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 20 year fixed rate mortgage, and
the advantages offered by the 20 versus the 15 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.

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

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 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.

Many homeowners who purchase a home 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 fully paid out prior to
retirement.

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 20 year fixed rate mortgage is
often the mortgage product of choice, especially for the
thirty-something homeowners today.

About the author:

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