Should the 30-Year Mortgage Be Retired?

• September 3rd 2010

by Mark Wellborn

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Arkadi Kuhlmann, the president and CEO of ING Direct, wrote an op-ed for The Washington Post today that puts forth the idea that the 30-year fixed rate mortgage should be phased out in place of shorter-term loans.

Kuhlman writes that long-term mortgages are better suited for a time when Americans stayed in one home for most of their lives. Also, the interest costs, moderate increase in equity, and the costs associated with re-financing makes the 30-year mortgage rather unattractive despite the current record low rates. Kuhlman believes that there is a better option: short-term, fixed-rate loans.

From the column:

“On a typical $225,000 mortgage, a buyer who gets a five-year, fixed-rate mortgage at 3.5 percent might well pay 4.75 percent for a 30-year loan. The savings would come to more than $11,000 when it’s time to refinance the five-year agreement.

The savings generated from shorter-term loans could be put directly toward paying down the principal by consumers eager to build equity. Instead of chipping away at their mortgage over half a lifetime, people would achieve the security that comes from homeownership much faster — and our nation would be encouraging savings, not debt. And anyone worried about a potential rise in interest rates could simply refinance at a different point or for a slightly longer period.”

The ING CEO points to Canada as a successfull model of shorter term mortages, noting that less than 1 percent of homeowners in that country are behind on their mortgage payments, compared to 14 percent in the U.S.

This article originally published at https://dc.urbanturf.com/articles/blog/should_the_30-year_mortgage_be_retired/2446.