Conventional Mortgages

Hi,
A 30 year fixed rate mortgage is a loan in which the principal and interest is repaid in equal monthly installments through the term of the loan. Until 35 years ago, almost all mortgages were 30 year fixed rate mortgages. The primary reason for this was the peace of mind that borrowers received knowing that their house payment would not change. Another benefit of conventional mortgages was that they didn't have points, prepayment penalties and other hidden fees. People had to meet strict credit guidelines to qualify for conventional mortgages. Beginning in the late 1970's, interest rates began to rise, peaking at over 13% in 1983. When the interest rates began to rise, the number of people who qualified for mortgages decreased. In order to support the housing industry, it became necessary for financial institutions to create a multitude of other mortgage structures people could qualify for in order to purchase homes. Very often these other mortgage structures enabled borrowers to obtain a mortgage that they wouldn't be qualified for under 30 year fixed mortgage guidelines. In most instances, the majority of people would convert these other structures into 30 year fixed rate mortgages as soon as possible. One component of 30 year mortgages, which has virtually disappeared in the marketplace today, was that almost all mortgages were assumable: people who bought homes assumed the existing mortgages. Eliminating assumable mortgages has allowed lenders to make more money and reduce risks associated with loans. When shopping for a mortgage, it is important to check with a variety of institutions, due to the fluctuation of mortgage rates among lenders. Tomorrow, I'm going to talk about the remaining mortgage structures.
Until then,
Alan