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The creation of the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac) in the 1970's changed the home loan landscape with the introduction of the 30 Year Fixed Rate mortgage loan. Today, the 30 Year Fixed Rate loan is the “staple” of mortgage loans in the U.S.
Because of the stability of this loan, it is very popular among both borrowers and the secondary market. It is a “what you see is what you get” loan. The interest rate at the beginning of the loan is the same rate in the middle and at the end of the loan. For borrowers, it is simple to analyze which offers are best.
A comparison of the interest rate, points to be paid, and closing costs will normally present a clear picture of your best financing option. Because of the term of this loan, do not be surprised if your Truth-In-Lending (TIL) estimate shows that you will pay back double the amount you borrow over 30 years. While it is a bit scary to look at, borrow $200,000 and pay back over $400,000, the odds indicate you will not keep this loan to end of term. The average life of a mortgage loan in the U.S. is around 7½ to 10 years, so you probably won't pay all of the projected interest. If you either plan on keeping your property for the long term or are totally undecided whether this home will be a short or long term relationship, a 30 Year Fixed Rate loan is often the best choice.
|Sheri Ann Richerson|