Is the 30-Year Fixed Bad News Now?

Over the past few years, the 30-year fixed has been the darling of the mortgage industry.

After all, you could get a fixed interest rate below 3% that would stay with you for 30 years.

In other words, an incredibly low rate that would never adjust as you paid off your home.

Of course, these low rates were subsidized via a massive Fed-led bond and MBS buying program, which has since come to an end.

Now that mortgage rates are 7% and possibly headed higher, it could be time to rethink your home loan.

The 30-Year Fixed Is No Longer on Sale

As noted, 30-year fixed mortgage rates were a screaming deal for many years, with the last few the best.

In fact, the 30-year fixed hit a record low 2.65% during the week ending January 7th, 2021.

Imagine having a fixed interest rate in the mid-2% range from now until the year 2050.

And imagine the value of the dollar eroding, while wages hopefully increase, making that fixed mortgage payment cheaper and cheaper over time.

Well, it’s not just a pipe dream for millions of American homeowners who in fact are living that reality.

This is one reason why homeowners aren’t selling, one potential insulating factor working against a massive housing crash.

Anyway, if you’re not one of these lucky homeowners, you might be wondering if the 30-year fixed is still the go-to mortgage of choice.

While it probably technically is, because it commands something like a 90% market share, it will cede some of that to other loan products if rates remain elevated.

Especially if mortgage rates hit 8% next. Even at their current levels, around 6.5%-7%, you might want to consider other options.

You Pay a Premium for a Fixed Interest Rate on Your Mortgage

If the 30-year fixed is no longer a good choice, what is? A scary adjustable-rate mortgage (ARM) that is subject to adjust even higher in the future?

Before we talk about ARMs, let’s consider the point of a fixed-rate mortgage. It’s to lock in a low interest rate.

When you elect to take out a 30-year fixed (or 15-year fixed) or any fixed-rate product, you pay a premium to do so.

Because the interest rate cannot change, the lender must charge a premium for that assurance.

As noted, there wasn’t much of a premium charged over the past few years, and in fact fixed mortgages priced below the price of ARMs.

But that’s no…

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