In an article titled "Fixed-rate loans means no surprises", the Washington Post suggests that fixed rate mortgages are the safest mortgage choice for homeowners.
This is not true.
This article is another example of the mainstream media ignoring the finer points of mortgage planning and home equity management.
The author talks about financial "safety" which I measure in three ways:
Against those benchmarks, the 30-year fixed-rate mortgage fails terribly.
First, the 30-year fixed rate mortgage includes a principal paydown in every mortgage payment. Those principal dollars are sourced from a checking or savings account that is available at a moment's notice. Once applied to the mortgage, those dollars can only be re-accessed with a remortgage.
Second, as the 30-year fixed rate mortgage pays down, the homeowner's real estate investment increases by the amount of principal paid down. Every dollar put towards the home is a dollar in housing.
And third, the money used to pay down principal has been taken from a bank account where it was earning interest and is now just "money on paper" where it gains nothing.
Summarized, the 30-year fixed-rate mortgage renders a homeowner:
In other words, the 30-year fixed-rate mortgage fails on all three "safety checks". It's the opposite of financial safety.
That said, there is a certain class of homeowners for whom the 30-year fixed-rate mortgages is appropriate, but it's not suitable for all. That's why blanket statements like "fixed rate mortgages are safe" are false.
Like every other mortgage product, a 30-year fixed-rate mortgage should selecting only as it fits into a homeowner's short- and long-term financial goals.
The information contained on The Mortgage Reports website is for informational purposes only and is not an advertisement for products offered by Full Beaker. The views and opinions expressed herein are those of the author and do not reflect the policy or position of Full Beaker, its officers, parent, or affiliates.
Barry L. Systems Analyst
The Mortgage Reports is an excellent resource. I depend on the Mortgage Reports for the most up-to-date information regarding shifts in government policy and mortgage rate information in general.
Ron Z. Real Estate Agent
I am a full-time Realtor and I look forward to daily updates from The Mortgage Reports. The advice is useful and the insight is important. Thank you!
Thomas D. Software Developer
As a first time home buyer, The Mortgage Reports has been the only voice that I can trust, and the expertise has been helpful.
2017 Conforming, FHA, & VA Loan Limits
Mortgage loan limits for every U.S. county, as published by Fannie Mae & Freddie Mac, the Federal Housing Administration (FHA), and the Department of Veterans Affairs (VA)