Will The 30-Year Fixed Rate Mortgage Disappear?

Have you been waiting on purchasing a home?

When you plan to buy your home, do you plan to get a 30-year fixed rate mortgage?

Today is a beautiful day in Northville, Michigan. Temperatures will be in the high 60s and the forecast is sunny. It's a perfect day for house hunting. If you have been considering buying a house for a while, right now is the time to do it especially if you are thinking about getting a 30-year fixed rate mortgage. 

Did you know that most other countries do not even offer a 30-year fixed rate mortgage? Instead, they have adjustable rate mortgages that rise and fall with the interest rates. 

As Washington meets to discuss the replacement of Fannie Mae and Freddie Mac, a deeper question emerges: should 30-year fixed rate mortgages continue to be as assessable? 

Banks do not like holding 30-year mortgages and that's because when they guarantee the interest rate for those 30-year mortgages, they don't get a guarantee for themselves. During the 1980s, many saving and loans failed because of this.

According to an article in the Wall Street Journal, that was the introduction of Freddie Mae and Fannie Mac.

          "Enter Fannie and Freddie. They don't make loans. Instead, they buy them from lenders, package them into securities, and sell those to investors. They promise to make investors whole when mortgages default. In other words, they take the credit risk. The 30-year mortgage is available mainly because of government guarantees-implied before the crisis and explicit since 2008."

Democrats and Republicans are deeply divided on the decision. 

  • Those for keeping the 30-year fixed mortgage believe that it is a bad time to push adjustable rate mortgages because interest rates are most likely going to be rising.
  • Those against the 30-year fixed mortgage want the government out of the mortgage business. They believe that the loan is not practical when borrowers pay so much in interest at the beginning of the loan, do not build equity and then the loans are dissolved early due to a move or divorce. 

However, Americans love the 30-year mortgage. Instead of the 30-year mortgage disappearing, there may be other answers such as requiring larger down payments and/or higher interest rates.

Whatever Washington decides, it looks like changes are coming for the future. That makes right now the perfect time to buy that home you have always been dreaming of. Get in on the low 30-year fixed-rate mortgage while you still can. If you are ready to start looking, please give our office a call.