David Andrukonis defends the 30-year fixed-rate mortgage as if prepayment and the “time value of money” are equalizers (Letters, Oct. 13). They aren’t. Borrowers can prepay only if they have the cash. That’s tough, as 57% of Americans say they feel financially strapped. When home values collapse, as they did in 2008, many Americans found themselves $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, only those with sufficient equity could refinance. The fixed-rate structure amplifies systemic risk: Each time rates fall, a wave of refinancings destabilizes lenders and investors. This mismatch between helped trigger the savings-and-loan crisis.
The rest of the developed world has figured out a better way. In the U.K., long-term adjustable-rate mortgages are standard. Borrowers don’t pay for decades of “interest-rate insurance” they’ll never use. Yet the country’s homeownership rate, 64.5% in 2023, is nearly identical to ours (65%).
The 30-year mortgages survive because government subsidies support them. Nowhere else would such a product exist naturally. It inflates prices, distorts markets, and transfers wealth from borrowers to institutions under the guise of stability.