Francis Vayalumkal

THE HOTTEST MORTGAGE PRODUCT: THE 30-YEAR FIXED-RATE MORTGAGE
By Francis Vayalumkal

The mortgage industry has introduced dozens of new types of loans in recent years. The needs of every borrower are different; so the mortgage companies have tried to come up with an answer for every problem. They�ve introduced 40-year mortgages, promoted 15-year mortgages and introduced the wildest array of variable-rate mortgages imaginable. There are mortgages with interest rates that adjust every few months, every few years, or just once.

A recently popular product that thrives on the East and West Coasts is the interest-only mortgage, which reduces payments by not requiring payment on the loan�s principal for the first few years of the loan. The prospective home buyer could have as many as one 100 possible types of loans to choose from when searching for a mortgage.

Amid this huge array of loan types, one type is growing in popularity faster than all the rest, and it may surprise you. The fastest-growing type of mortgage in America presently is the traditional 30-year, fixed-rate loan. Last year, only about 35 percent of all borrowers took out a 30-year, fixed-rate loan, but so far this year, the rate has increased to nearly 50 percent.

This may seem odd, as most everyone has been opting for adjustable-rate mortgages for the last few years. Adjustable-rate mortgages tend to offer lower interest rates, and lower interest rates mean lower payments. These loans have been popular with buyers who move often, have lower incomes or buyers who simply want to invest their money elsewhere.

So why is the 30-year fixed-rate mortgage back in style? Because interest rates have dropped to their lowest point in 14 months, and they are nearly as low as they were in the summer of 2003, when they reached the lowest point on record. In short, the 30-year fixed-rate mortgage is not only seen as competitive with other types of loans, but it is actually seen as safer.

Borrowers who have adjustable-rate mortgages enjoy their biggest advantage when rates are high, knowing that their interest rate is lower than a fixed-rate mortgage. But when interest rates for the market as a whole reach historic lows, the borrower with an adjustable-rate mortgage knows that their rate can only go up. At times like today, when rates are only likely to go up, converting an adjustable rate loan to a fixed-rate loan is a smart move. First-time buyers can safely take on a 30-year, fixed-rate loan and be comfortable in the fact that their rate will stay fairly low for the duration of their loan.

Sometimes, the way things have always been done turns out to be the best. While there are still some buyers who will benefit from adjustable-rate loans, most borrowers would do well to lock in their loan at a fixed rate now. Historically, fixed-rate mortgages have rarely been under 6 percent; so obtaining such a loan while they are available is one of the smartest moves a homeowner can make.

Francis Vayalumkal is a loan officer at Market Street Mortgage and can be reached at (813) 971-7555 or via e-mail at [email protected]