In the emerging public debate over what type of mortgage products are best for American consumers, the Homeownership Alliance recently reiterated the extraordinary value that 30-year, fixed-rate prepayable mortgages provide homeowners and the U.S. economy as a whole.
The Alliance -- a coalition of trade and professional associations, consumer advocacy groups and housing industry organizations -- commissions studies and white papers on a broad range of housing issues. Over the past two years, the Alliance has produced a volume of material that clearly demonstrates and details the market-driven benefits of the 30-year, fixed-rate mortgage.
Among the benefits of this hugely popular mortgage product are the following:
-Certainty on the size of their payment for up to three decades, providing peace of mind and the ability to plan to a financial future.
-Ability to refinance and put money back into the economy.
-Increased homeownership.
-Affordability.
"With the many financing alternatives available to consumers, Americans still choose the fixed-rate mortgage. Fixed-rate financing provides long-term financial security to homeowners and it allows more Americans to own homes," said Rick Davis, president of the Homeownership Alliance.
In a white paper released by the Alliance last year, Stuart Gabriel wrote, "The fixed-rate mortgage is the cornerstone of the U.S. housing finance system, putting millions on the path to wealth."
Gabriel, director of the University of Southern California Lusk Center for Real Estatecolor>, explained in the Alliance white paper "Mortgage Finance Innovation and the Achievement of Homeownership: The Role of the Fixed-Rate Mortgage" how the fixed-rate mortgage continues to hold sway over adjustable rate mortgages.
"Arguably among the most profound of U.S. mortgage innovations came long ago with the introduction of the level-payment fixed-rate mortgage in the 1930s. That instrument has become a cornerstone of the highly articulated U.S. housing finance system. Further, the introduction of the long-term, level-payment mortgages, together with standardization in underwriting and active secondary market trading thereof, has resulted in substantial homeownership gains among U.S. households," Gabriel said.
"The substantially longer term of the fixed-rate mortgage enabled a lower monthly payment, in turn facilitating lower payments-to-income ratios and hence higher levels of housing affordability among moderate-income homebuyers," Gabriel said.
At an International Housing Forum sponsored by the Alliance last year, a panel of experts agreed that the U.S. housing finance system is unique with its fixed-rate mortgage and the ability for consumers to refinance mortgage loans without significant prepayment penalties or administrative costs.
James Shilling, Ph.D., another panelist and the professor of Real Estate and Urban Land Economics at the University of Wisconsin-Madison, said "The ability to refinance for lower interest rates is an important element of the U.S. system as it allows consumers to take equity out of their home and put it back into the economy."
In a recent Homeownership Alliance study, "Safe at Home: The New Role of Housing in the U.S. Economy," Todd Buchholz wrote, "Homeowners locking into cheaper, fixed-rate mortgages perceived a long-term benefit to their finances. Long-term changes have a far greater impact on consumer spending than short-term changes such as temporary tax rebates."
-- Homeownership Alliance