When locking in the financial terms of a new home, more than eight out of ten American consumers prefer the long-term, fixed-rate prepayable mortgage over the adjustable rate mortgage, according to data from the Federal Housing Finance Board.
Numerous financial services exist to allow consumers to become homeowners. These services all serve a special market segment and help more Americans become homeowners. However in recent years, the United States has seen continuous innovation and increased sophistication in the area of mortgage finance, including significant changes in the 30-year, fixed-rate prepayable mortgage. This innovation has led to enhanced consumer choice among mortgage instruments, automation of underwriting and increased securitization. As a result, consumers across the country prefer the fixed-rate mortgage.
Consumers in Alaska lead the pack in favoring the fixed-rate mortgage. In 2003, 98 percent of conventional home mortgages in Alaska were fixed-rate mortgages. Following Alaska in favoring the fixed-rate mortgage are Delaware (93 percent), Oklahoma (92 percent), Texas (92 percent), New Mexico (91 percent), Pennsylvania (91 percent) and Tennessee (90 percent).
For a state-by-state comparison of fixed rate and adjustable rate mortgages, go to http://www.homeownershipalliance.com.
"The fixed-rate mortgage is a cornerstone of the U.S. housing finance system and has been instrumental to the accrual of wealth on the part of many households. The low interest rates of the past two years have increasingly lured consumers seeking a predictable payment in an uncertain economy," said. Stuart Gabriel, Ph.D., Director of the University of Southern California (USC) Lusk Center for Real Estate.color>
Gabriel wrote a white paper released last year by the Homeownership Alliance explaining how the fixed-rate mortgage has made homeownership possible for millions of Americans since the 1930s and continues to hold sway over adjustable rate mortgages. The white paper, Mortgage Finance Innovation and the Achievement of Homeownership: The Role of the Fixed-Rate Mortgage, describes the introduction of and evolution in fixed-rate mortgage finance.
The paper gives particular attention to the federal policy initiatives and consumer benefits associated with the widespread proliferation of the fixed-rate mortgage.
Introduced into U.S. mortgage markets by the Federal Housing Administration during the Great Depression, fixed-rate mortgages were designed by the government to increase homeownership. The prevailing instrument of U.S. mortgage finance prior to the creation of the fixed-rate mortgage was a balloon loan which required the repayment of principal in its entirety at the end of 10 years.
Among the benefits of the 30-year, fixed-rate prepayable mortgage are certainty on the amount of payment for up to three decades, the ability to refinance and put money back into the economy, increased homeownership and affordability.
In recent years, mortgage providers have introduced innovative terms for the 30-year, fixed-rate prepayable mortgage. The high-tech revolution has allowed the financial industry to offer mortgages to people traditionally unable to qualify for loans, such as those with lower incomes, little money for a down payment or poor credit.
"The homeownership rate has reached an all-time high of 68 percent. This tremendously high level of homeownership is largely the result of a strong housing finance system made possible by the secondary mortgage market," said Rick Davis, president of the Homeownership Alliance.