Thirty-year mortgages rates haven’t been this cheap in my lifetime. Considering this was the year of my 20th high school reunion, that’s a fairly long time.
A fixed-rate mortgage costs more to obtain than an adjustable-rate mortgage of the same term because the lender bears the interest-rate risk. The means that the lender agrees to charge you a constant interest rate for up to the entire term of the mortgage, regardless of how interest rates fluctuate during those times. If interest rates are going at 15% or more in the 2020’s, too bad!
But there’s another trend that makes fixed-rate mortgages even more appealing: Inflation. Here’s how that works.
If I had gotten a 30-year, $100,000 fixed-rate mortgage in 1990 (when interest rates were about 10%), my monthly payment would have been $878. If I had held that mortgage through today, my monthly payment would be exactly the same in dollars: $878.
Let’s plug this amount in an inflation calculator. (Here’s the one I used.) My $878 in 1990 would buy $1,423 worth of stuff in 2009! Or, looking at it another way, my $878 mortgage payment would only “feel like” $512 in 2009. The fixed-rate mortgage payment becomes less of a burden as time goes on because of inflation. Inflation is a trend that is unlikely to stop.
As everything else is getting more expensive year by year, a fixed-rate mortgage payment stays the same. It’s inflation protection.
Is this a good reason in itself to run out and get a mortgage if you don’t need one? Of course not! But if you’re in the latter half of your mortgage, ask yourself if the payment is easier to make than it was 15 years ago. It probably is. If you haven’t refinanced in a while, this may be a great time to do so. Just refinance your mortgage to another fixed-rate mortgage with your current balance, and enjoy a drop in payment, or a drop in payoff time, or even both.
And watch that payment become easier and easier to make each year.
(Thanks to Ultimate Money Blog for including this post in the Carnival of Personal Finance!)