It’s 2012, prices are down and interest rates are at historic lows. So why in the world are we still writing 30 year mortgages?
Thirty year mortgages were popularized during the days of 18% mortgages and inflated home prices. The purpose was to offset the abnormally high cost of borrowing money.
The problem with the thirty year loan is that in the first ten years, the principle balance is not significantly reduced. The ONLY way to build equity was to sit and wait and home that property values went up.
In today’s market, a 15 year loan monthly payment is still a LOT less for the average home than a 30 year loan was for the same property just a scant five years ago.
Negative equity is killing home ownership. Shorter loan terms are the only CERTAIN way to build equity quickly.
Eliminating mortgages over fifteen years is one way to speed up the housing recovery. Will it take some people out of the market? Not necessarily.
They may have to buy less house, but at they end of the day, they will be better off with a lower par rate and a larger portion of their first payments being applied towards the principle balance of their loan.
It sounds too simple to work.
But it just might be the right fix at the right time!
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