30 year fixed rate mortgages: why we are so lucky to have them

By Alan Rosenthal

Most of us take 30-year fixed rate mortgages for granted. They’ve been around so long and are so popular that we do not realize how lucky we truly are to have them.

Whether we’re buying as an owner occupant or investor, we can lock in a specific interest rate for the next 30 years. It does not matter who becomes the next president or the next Federal Reserve chairman. Even inflation does not matter as far as our loan is concerned. If interest rates go up to 8%, 9% or 10% five or seven years from now, we do not have to worry or lose any sleep over it. Our rate is fixed for the next 30 years.

But what happens if interest rates go down? We can refinance to a lower rate, right? Would you loan me $100,000 or $200,000 at 7% interest for the next 30 years? I did not think so.

The reason we have this opportunity is because of the United States’ commitment to home ownership with the help of a highly developed secondary market. Investors throughout the world provide liquidity to our lenders mostly through secondary intermediaries such as Freddie Mac and Fannie Mae.

Let’s look at some other highly developed Nations and see how lucky we, in the United States, are.

Germany: While the home ownership rate in the United States is now 69%, the largest economy in Europe has a home ownership rate of only 40% because of the high cost of housing. Down payments are usually 40% and fixed rate loans are available for one to ten years. If the loan is paid off early, you are still required to pay all the interest the lender would have collected had the loan reached maturity.

Japan: Down payments are on an average 50%-60%. Most loans are adjustable rate mortgages or shorter term fixed rates – three years is the most common fixed rate term.

Great Britain: The most common type of mortgage here is the reviewable-rate mortgage. Whenever the market rate changes, the mortgage company reviews the borrower’s interest rate and decides to raise or lower the rate at its own discretion. The only factor that helps the British is competition from other lenders.

France: French borrowers typically put as much as a 40% down payment. The 15 year fixed rate mortgage is the most common. Financial institutions relay more on a borrower's credit record than on the property’s equity as collateral on the loan.

Italy: Italy’s average down payment is a whopping 50%. Mortgage loans are typically ten to 15 years, and the majority is at variable rate.

Canada: Mortgages in Canada usually have fixed rates for up to five years and then “roll-over”. At “roll-over”, the borrower picks another mortgage period before it “rolls-over” again. These loans almost always have a “yield maintenance penalty” that guarantees the lender a minimum return over the length of the loan. All down payments of less than 25% require private mortgage insurance.

In conclusion, to be able to put 10% or 20% down and finance the rest with a 30 year fixed rate mortgage that is 100% fixed for the length of the loan is truly a very rare gift. It allows us investors to know with complete certainty that no matter what happens with our economy and country, rates and interest payments will not be effected for the next 30 years unless we want it to be. That’s very nice peace of mind.

To learn more about how Real Estate Investments can help secure your family's financial future, go to Dr. Alan Rosenthal's website at FinancialHealthRealEstate.com where you can find more great investment information. And while you're there, please sign up for your FREE Financial Health Real Estate Starter Package full of tips, newsletters and much more. Plus, you are cordially invited to attend one of his real estate investment workshops by visiting FinancialHealthRealEstate.com/UpcomingEvents.html. For additional information listen to one of Dr. Alan Rosenthal’s investment talks at FinancialHealthRealEstate.com/InvestmentTalks.html.


Home About Dr. Rosenthal Rave Reviews Upcoming Events Credit Repair Solutions Articles and Resources Products Ask Dr. Rosenthal Schedule an Appointment FAQs Blog Contact Us	30 year fixed rate mortgages: why we are so lucky to have them By Alan Rosenthal Most of us take 30-year fixed rate mortgages for granted. They’ve been around so long and are so popular that we do not realize how lucky we truly are to have them. Whether we’re buying as an owner occupant or investor, we can lock in a specific interest rate for the next 30 years. It does not matter who becomes the next president or the next Federal Reserve chairman. Even inflation does not matter as far as our loan is concerned. If interest rates go up to 8%, 9% or 10% five or seven years from now, we do not have to worry or lose any sleep over it. Our rate is fixed for the next 30 years. But what happens if interest rates go down? We can refinance to a lower rate, right? Would you loan me $100,000 or $200,000 at 7% interest for the next 30 years? I did not think so. The reason we have this opportunity is because of the United States’ commitment to home ownership with the help of a highly developed secondary market. Investors throughout the world provide liquidity to our lenders mostly through secondary intermediaries such as Freddie Mac and Fannie Mae. Let’s look at some other highly developed Nations and see how lucky we, in the United States, are. Germany: While the home ownership rate in the United States is now 69%, the largest economy in Europe has a home ownership rate of only 40% because of the high cost of housing. Down payments are usually 40% and fixed rate loans are available for one to ten years. If the loan is paid off early, you are still required to pay all the interest the lender would have collected had the loan reached maturity. Japan: Down payments are on an average 50%-60%. Most loans are adjustable rate mortgages or shorter term fixed rates – three years is the most common fixed rate term. Great Britain: The most common type of mortgage here is the reviewable-rate mortgage. Whenever the market rate changes, the mortgage company reviews the borrower’s interest rate and decides to raise or lower the rate at its own discretion. The only factor that helps the British is competition from other lenders. France: French borrowers typically put as much as a 40% down payment. The 15 year fixed rate mortgage is the most common. Financial institutions relay more on a borrower's credit record than on the property’s equity as collateral on the loan. Italy: Italy’s average down payment is a whopping 50%. Mortgage loans are typically ten to 15 years, and the majority is at variable rate. Canada: Mortgages in Canada usually have fixed rates for up to five years and then “roll-over”. At “roll-over”, the borrower picks another mortgage period before it “rolls-over” again. These loans almost always have a “yield maintenance penalty” that guarantees the lender a minimum return over the length of the loan. All down payments of less than 25% require private mortgage insurance. In conclusion, to be able to put 10% or 20% down and finance the rest with a 30 year fixed rate mortgage that is 100% fixed for the length of the loan is truly a very rare gift. It allows us investors to know with complete certainty that no matter what happens with our economy and country, rates and interest payments will not be effected for the next 30 years unless we want it to be. That’s very nice peace of mind. To learn more about how Real Estate Investments can help secure your family's financial future, go to Dr. Alan Rosenthal's website at FinancialHealthRealEstate.com where you can find more great investment information. And while you're there, please sign up for your FREE Financial Health Real Estate Starter Package full of tips, newsletters and much more. Plus, you are cordially invited to attend one of his real estate investment workshops by visiting FinancialHealthRealEstate.com/UpcomingEvents.html. For additional information listen to one of Dr. Alan Rosenthal’s investment talks at FinancialHealthRealEstate.com/InvestmentTalks.html. ©2008 Financial Health Real Estate, Inc.