Ten year Fixed Rate Mortgage

Fixed-rate mortgage for ten years

Decades after the 2008 crisis: Flip side of the 30-year fixed-rate mortgage Here is a lecture on the tenth year of the 2008 fiscal meltdown that almost no one seems to notice: the serious flip side of the 30-year US fixed-rate mortgage as it was shown during the breakdown of the real estate bubble. What is more, the mortgage is a real estate mortgage, which is a mortgage that has been in place for a long time. Listening to policymakers, supporters of state mortgage bonds, supporters of Fannie Mae and Freddie Mac, and typically US mortgage lenders always chanting the praise of the 30-year fixed-rate mortgage, one would think that it has no disadvantage at all.

Mr. Glenn Hubbard, former Chair of the Council of Economic Advisers, recently commented on the crisis: "In other words, the cost of their home had sunk below what they owe on the mortgage, in other words, billions of home-owners who were currently on their mortgage repayments could not afford to pay lower interest because they were under water.

This is only half the statement; the other half is that these landlords could not get a lower interest rate because they had a fixed-rate mortgage. They therefore maintained what had become a burdening interest rate in relation to the overall interest rate on the markets. On the other hand, the interest rate on variable rate mortgage loans drops naturally, even if the declining cost of the home has flooded the mortgage.

As a result, mortgage repayments due are reduced by default, borrower pressures are reduced and liquidity is improved. Mortgagors in many jurisdictions profited from this fact during the turmoil, but not the unfortunate Americans who had a 30-year fixed-rate mortgage coupled with a falling home rate. Of course, variable-rate mortgage loans become more costly when interest rises, but are cheaper when interest falls - as they did during the dramatic economic upswing.

On the other hand, our 30-year fixed-rate mortgage is okay if home values rise forever, but in a residential inflation with declining interest levels they are horrible for the borrower. When the real estate bubble shrank, they proved not to be a "free lunch" of a continual refinancing facility, but a very costly luncheon for, as Prof. Hubbard says, "millions of home-owners.

As the leverage effect of the mortgage increased, it became more costly. Undoubtedly, the 30-year fixed-rate mortgage epidemic has exacerbated the US real estate financing crises.

Mehr zum Thema