It does seem sort of strange, that banks would willingly issue 30-year fixed mortgages in America, in consideration that this sort of commitment by a bank could be disadvantageous to banks when inflation is persistent and high. Still, a 30-year fixed mortgage is the norm in America and has been for quite some time. We find though that there are other options available for home buyers, such as the 15-year fixed mortgage which might even be a better fit for certain individuals, as well as there being also Adjustable Rate Mortgages which many a person is enticed into taking. There are, indeed, quite a few options that consumers can avail themselves of when it comes to getting a mortgage, but in short, a 30-year mortgage is often going to be the best bet for most consumers and there are some very valid reasons why.
An important issue when it comes to a mortgage is the understanding that inflation is part and parcel of the American economy at this point and is not going to go away, anytime soon. Additionally, governments, the world over, do not want deflation to ever be a norm within their economy, because deflation means that goods are getting cheaper over time, and when this is the case, consumers are going to be patient and purchase what they need to purchase, later as compared to sooner, which is why we don’t see deflation, and instead see inflation. Additionally, America has for nearly a century seen its dollar depreciate in value because of that inflation.
So then, it is important to recognize that inflation is here to stay, of which, the Federal Reserve is comfortable with 2% inflation, though in recent times, inflation has been significantly hotter than that, in addition to the salient fact that the government has a massive deficit which needs to be serviced, which puts pressure on the dollar and its worth, and thereby plays its own influence upon the overall inflation rate.
The very good thing about a 30-year mortgage is the fact that the payment coupon each month does not change, whatsoever, for 30 years. It is the same amount of money, year in and year out, which signifies that for all those consumers who believe that their income will surely go up and at least match the inflation rate, or do even better than that, they will intuitively recognize that the paying of their 30-year mortgage as time goes on, will get progressively cheaper. That is to say when a person’s income doubles over a period of time, but their mortgage payment coupon remains the same, the amount of one’s salary thus being dedicated to that mortgage payment has been slashed significantly. This is why a 30-year fixed mortgage is so beneficial to the consumer, because that debt first incurred, is going to get progressively cheaper, because of inflation, and therefore their ability to pay that mortgage will get progressive easier; whereas, for those that have signed up for an Adjustable Mortgage rate, they are stuck within a construct in which higher inflation, necessitates a higher mortgage coupon payment, which is something that they should want to do their level best to avoid.