In his letter responding to my column in The Wall Street Journal, “The Case Against 30-Year Mortgages,” former Freddie Mac executive David Andrukonis defends the 30-year fixed-rate mortgage as a transparent, borrower-friendly product. In “A Confused Case Against 30-Year Mortgages,” he argues that such loans are fully prepayable, giving homeowners flexibility to refinance or pay off early, and that they protect borrowers against rising interest rates.
Andrukonis also invokes the time value of money, suggesting that my focus on total lifetime interest payments ignores how future dollars are worth less than present ones. He contends that most borrowers understand their loans and willingly choose longer terms when rates are low. In his view, my criticism assumes that borrowers are naïve and overlooks basic financial principles.
He’s right. I do assume just that.
The Truth in Lending Act (TILA) was sold as a transparency reform, but in practice it institutionalized a kind of regulatory illusion. By reducing complex, long-term credit instruments to a single, deceptively tidy number in the Annual Percentage Rate, it gave borrowers the illusion of comprehension without the substance of understanding. APR flattens time, risk, and compounding interest into a digestible figure that looks objective but hides the true cost of borrowing. It invites confidence, not caution.
Borrowers believe they “know their rate,” when in reality they’re comparing financial products that operate on entirely different temporal scales. A 30-year mortgage and a five-year car loan may share the same APR on paper, yet the long-term mortgage extracts multiples more in interest over time. In this way, TILA didn’t empower consumers: it made them easier to dupe, cloaking complexity in the language of simplicity.
My Reply
David Andrukonis defends the 30-year fixed-rate mortgage as if prepayment and the “time value of money” are equalizers. They aren’t. Yes, borrowers can technically pre-pay, but only if they have the cash. That’s tough, as 57% of Americans say they feel financially strapped as of this summer. When home values collapse, as they did in 2008, many Americans found themselves $80,000 or $100,000 underwater. To refinance into a lower rate, they would have had to bring cash to the closing table.
The flexibility of the 30-year mortgage is an illusion. When the Federal Reserve slashed rates, few homeowners could refinance. The fixed-rate structure amplifies systemic risk: each time rates fall, a wave of refinancings destabilizes lenders and investors. This mismatch between rates helped trigger the savings-and-loan crisis.
The rest of the developed world has figured out a better way. In countries like the United Kingdom, long-term adjustable-rate mortgages are standard. Borrowers don’t pay for decades of “interest-rate insurance” they’ll never use; most Americans move or refinance within eight years. Yet the U.K.’s homeownership rate, 64.5% in 2023, is virtually identical to that of the United States: 65% as of Q2 2025.
Mr. Andrukonis would know the 30-year mortgage well: he spent years at Freddie Mac, the very institution built to subsidize and securitize it. Some habits die hard. The truth is that 30-year mortgages survive only because government subsidies support them. Nowhere else in the world would such a product exist naturally. It inflates prices, distorts markets, and transfers wealth from borrowers to institutions under the guise of stability.
- Compounding Interest: Reader Replies, Part I
- Compounding Interest: Reader Replies, Part II
- Compounding Interest: Reader Replies, Part III
- Compounding Interest: Reader Replies, Part IV
- Compounding Interest: The Case Against the Confused Case Against the Case Against 30-Year Mortgages