Let's face it, most Americans when they take out a mortgage on their home take out the traditional 30-year fix mortgage, no matter their age, yet there is absolutely nothing else that you will buy in your life that you will ever come close to committing to thirty years to. While it goes without saying, that a home purchase will almost always be substantially higher than any other material asset that you will ever purchase, it is difficult to separate this away from the fact that thirty years is thirty years, which is an incredibly long time, to be able to say, at the end of it, that this home is now finally all mine!
While there are other mortgage plans for shorter duration times, such as 15-year mortgages, along with hybrid mortgages, there are also incredibly mortgages that are even longer in term such as 35 or even a 40-year mortgage, which is truly mind boggling. Also, there still exists many plans, such as FHA, VA, USDA, amongst others, that allow home buyers to quality to purchase a home with little or no down payment for something that is being sold at $250,000 or even more. Additionally, while most lenders only give out their best mortgage rates for those with high credit scores, adequate income, and with a 20% down payment, homes are sold all the time to people without that 20% down payment as long as they qualify and purchase private mortgage insurance or are qualified under a special program.
In America, there was a time, a few generations ago, when in order to purchase a home, the down payment had to be at a minimum 50% of the home price in order to qualify to get a mortgage for your home and that mortgage was "interest only" and usually for a very short duration of time, such as three to five years, to which at the end of that period of time, either the borrower would then make that payment in full via a "balloon payment" or the loan would be refinanced. This way of purchasing homes actually worked fairly well, until the time of the depression, with its attendant massive unemployment, and most importantly, the deflation of home prices, whereupon the lenders of mortgages, had little interest in extending loans on property to which the principal had declined and their lien value had been significantly eroded. Not too surprisingly, the aftermath of this crisis, was for more government involvement in the housing market, which lead to eventually the 30-year mortgage becoming the standard.
The main problem with stretching out any loan for long periods of time, is that while on the one hand you are able to lower the payment of such a loan to a reasonable level, you are, on the other hand, extending the loan period of time for such a great length, that it ends up costing the consumer an incredible amount of money; for instance a $250,000 home, may after interest payments for 30 years come to a total of $450,000. Additionally, the fact that these mortgages are even available in the first place is a significant contributing factor to the overall higher pricing of houses to begin with; in other words, the more people that "qualify" to buy a home, than the more available dollars that are chasing after homes, which typically means a higher price; whereas, the less people that "qualify" to buy homes in general, would in aggregate, lower home prices.
Not only is today's 30-year mortgage loan way too long, it is also set up in such a way that in conjunction with low down payments, lends itself to a much higher incident of foreclosures and financial troubles for consumers than is really necessary. While it is often part of the American dream to own one's home, transparent affordability documents, along with having an appropriate income and a proper down payment is a surer way for home happiness.