Saturday, December 10, 2011

What's so special about the 30 year fixed rate mortgage

The 30 year fixed mortgage rate was at 3.99% in November, representing a historical low since record keeping began in 1971.  In New York, the low rate has driven up sales transactions but in the US overall, housing is still slow because of concerns over unemployment.

Historical trend of 30 year mortgage since 1971

The 30 year fixed mortgage is unique to the US as it means that for the next 30 years, the mortgage payment will be locked.  In most other countries, mortgage rates are variable, meaning they change along with the overall economic environment.  With the US's 30 year fixed mortgage, if the mortgage payment is $3,000 today, it will remain $3,000 for the next 30 years.  We know that in 30 years the buying power of $3,000 will be close to nothing.

To the property owner, this means that as inflation results in higher rental income and property value, the mortgage carrying cost remains the same.  Effectively, the "spread" or profit from rental income increases.

The 30 year mortgage is definitely great for the property owner.  I hope they don't eliminate it and that the rate remains low at least till I get a few more properties.

Wei min

Wei Min Tan in Managing Director of Castle Avenue Partners, focusing on foreign buyers interested in buying Manhattan, New York property.  He has appeared on CNN, New York Times and the Wall Street Journal on the topic of foreign buyers of Manhattan property.  Wei Min speaks Cantonese Chinese, Malaysian and conversational Mandarin Chinese.  He can be reached at

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