Home loans - the hot “new” product is the 30-year mortgage

Home lenders see rise in traditional loans

The mortgage industry has introduced dozens of new types of products in recent years, in hopes of having a loan that will suit the needs of most every potential customer. Every borrower has different income, needs and timeframe for paying off the loan; the mortgage companies have tried to come up with an answer for every problem. They have promoted 15 year mortgages, introduced 40 year mortgages, and they have invented the largest variety of adjustable-rate mortgages that can be imagined. There are mortgages that have rates that adjust once a year, several times a year, several times over the life of the loan, and mortgages that adjust only one time. A relatively recent product that is currently quite popular in the more expensive housing markets is the interest-only mortgage,

which reduces house payments by allowing the borrower to pay only the interest on the loan, and no principal, for the first few years of payments. Anyone considering purchasing a home could conceivably have as many as one hundred different types of loans to consider before agreeing to buy. Amidst this bewildering variety of loans, one type of mortgage is growing in popularity faster than all of the others, and it may come as a surprise. The best-selling and fastest-growing type of mortgage in America right now is the traditional, fixed-rate, 30-year term mortgage. In 2004, only about one third of all mortgages were 30 year term loans, but in 2005, the figure has already jumped to nearly half.

This may strike some as odd, as the last few years have seen most customers opt for adjustable-rate loans, or ARMs. An ARM does offer a lower interest rate and with that, lower payments. These types of products have been well suited to those who frequently move, have lower incomes, or who simply want to invest their funds in something else. So why is the 30-year product back in vogue? The biggest influence is the current interest rate, which is at the lowest point in more than a year. In fact, current rates are almost as low as they were in 2003, when they reached a record low. In short, the product is hot right now because there really aren’t any better deals over the long term. ARM customers know that their rates will adjust, and at this point, they can only go up. An ARM is really most useful in times of high interest rates. When the rates are low, as they are now, investors want to lock in at the low rate and keep it.

Times like now inspire borrowers to convert adjustable rate mortgages to fixed-rate ones. There are a few buyers out there who will still benefit from a floating rate, but most buyers would benefit the most from locking in at a long-term, fixed rate now. Historically, fixed-rate loans have seldom been available at rates of under 6%, so grabbing one while they are available is one of the more savvy moves a buyer can make.