How did the 30 year mortgage start?
The 30-year fixed rate mortgage owes its existence to government actions to remedy dislocations in the mortgage market. The process started during the Great Depression, when the federal government created the Home Owner's Loan Corporation (
FHA introduced the 30-year, self-amortizing mortgage during the 1930s, which along with low-downpayments, helped raise the homeownership rate from 43.6% in 1940 to 61.9% in 1960.
The Onset of the New Revolutionary Deal
The federal housing administration introduced mortgage insurance. One million defaulted mortgages were bought out by the Homeowner's Loan Corporation and were reinstated as 30-year and 15-year fixed-rate loans. The federal deposit insurance corporation insured the bank deposits.
The origins of the mortgage can even be traced back to Talmudic scriptures that were then modernized by Greek and Roman empires. The concept of trading a long-term pledge for the exchange of property happened in maritime law, civilizations of Europe, and early Americas.
Historically low interest rates and monthly payments are a few of the reasons that 30-year fixed mortgages are the most popular way to buy a home.
In fact, the 30-year mortgage wasn't officially authorized by Congress until 1948 (for new construction) and 1954 (for existing homes). Given these facts, it's not surprising that for much of the 1930s–1950s, the 15-year mortgage was the go-to option for many homebuyers.
To do that, the FHA created a number of valuable mortgage services. They created the 30-year mortgage, for example, and reduced the down payment required on new home sales. The FHA also created an appraisal system that helped lenders assess the risk in a certain property.
Central bank rate hikes in other countries including Australia and the U.K. hit household budgets harder and faster because variable-rate mortgages are standard. The U.S. is the only country where a 30-year fixed rate mortgage is standard, and is the result of government policy to encourage home ownership.
Mortgages finally entered the U.S. housing market in the early 1930s. Insurance companies, not financial institutions, implemented the idea as a way to take advantage of borrowers during the Great Depression. If a borrower failed to keep up with their payments, they would gain ownership of the property.
Campbell, a Harvard economist who has argued that the 30-year mortgage contributes to inequality. “If inflation goes way up, the lenders lose and the borrowers win. Whereas if inflation goes down, the borrower just refinances.” This isn't how things work elsewhere in the world.
Is it better to get a 30 year loan and pay it off in 15 years?
It will cost about 10–20% more to pay off a 30 year mortgage in 15 years than to take a 15 year mortgage and pay it off in that time. Generally, that's how much higher mortgage interest rates are on 30-year versus 15-year mortgages, about 10–20% higher.
The average 30-year fixed rate reached an all-time record low of 2.65% in January 2021 before surging to 7.79% in October 2023, according to Freddie Mac.
Interest rates reached their highest point in modern history in October 1981 when they peaked at 18.63%, according to the Freddie Mac data. Fixed mortgage rates declined from there, but they finished the decade at around 10%.
You Can Get a 30-year Mortgage at Any Age
You could be 99 years old and get a 30-year mortgage as long as you qualify. The lender may not deny a loan because they don't think you'll live long enough to pay it off. But the law addresses more than just the age at which you apply.
In the fall of 1981, the average 30-year mortgage rate reached an all-time high of 18.63%. We'll examine mortgage trends for the past five decades and look ahead to see what borrowers can expect in 2024.
There were many causes of the crisis, with commentators assigning different levels of blame to financial institutions, regulators, credit agencies, government housing policies, and consumers, among others. Two proximate causes were the rise in subprime lending and the increase in housing speculation.
The United States is unique in that it is the only country in the world that has as its primary mortgage offering the 30-year fixed rate mortgage.
In Switzerland, which tops the list, the average age for first time buyers is 48. With a difference of £91,892 ($122,859), a first-time buyer in the UK will have to stump up at least 15-20% of this to secure a mortgage based on average salary.
“The Guinness World Record for the longest mortgage ever taken goes to a Swedish couple who, in 2012, signed a mortgage agreement that would last 145 years.”
Almost 40% of US homeowners own their homes outright as of 2022—many of them baby boomers who refinanced when rates were low.
Who invented the mortgage?
Historians trace the origins of mortgage contracts to the reign of King Artaxerxes of Persia, who ruled modern-day Iran in the fifth century B.C. The Roman Empire formalized and documented the legal process of pledging collateral for a loan.
That changed back in 2008, when the central bank began directly buying Mortgage-Backed Securities (MBS) and financing bonds offered by Fannie Mae and Freddie Mac. This "liquefied" mortgage markets, giving investors a ready place to sell their holdings as needed, helping to drive down mortgage rates.
We can find references to mortgages in the United States stretching back at least as far as 1766, when the first mortgage was issued in St. Louis. The instrument has been around for a long time. For the purposes of this book, however, our discussion will begin with the nineteenth century.
Born between the early 1960s and early 1980s, most Gen X consumers have a home mortgage, own a car they pay for in installments, among other consumer loans, and have had several credit cards for years, making this the most indebted generation.
However, most homeowners won't keep their original loan for 30 years. Many either refinance the loan or move out before the mortgage term is up. The average mortgage length is about 10 years, according to a 2023 report on buyer and seller generational trends from the National Association of REALTORS® (NAR).
