Mortgages go simple again
A dramatic turnaround is taking place in the way home buyers finance their purchases. Generally, it's back to the basic conventional form of financing for most buyers, despite recent predictions by experts that the fixed-rate mortgage was doomed.
Typically, the home buyer of only a year ago would assume the existing mortgage loan on the purchased home, if possible, and the seller would carry back a sizable chunk of his equity in the form of another loan secured by a second mortgage or trust deed. That second loan usually carried a provision that it would be totally paid off with a balloon payment in three to seven years.
Today, by contrast, the typical home financing consists of one institutional mortgage loan - a ''first'' loan with a fixed interest rate and monthly payment for the life of the loan.
That's quite a contrast with the direction the market was taking in 1980-82. Then lenders were offering many forms of mortgage loans with variable rates and payments. In fact, industry leaders even went so far as to predict the demise of the fixed-rate loan altogether.
Consider these contrasts in the rapidly evolving home-financing market:
* Just nine months ago, less than half of all first-mortgage loans were fully amortized, fixed-interest-rate instruments. Now, almost 8 in 10 of all home loans are of that familiar type.
* A year ago, only about 30 percent of first-mortgage loans were made by financial institutions. Now more than 60 percent are provided by such institutions.
* A year ago, nearly a quarter of all first mortgages involved balloon payments. Now, only 4 percent involve ''balloons'' (short-term loans that become due at maturity in one lump-sum payment).
* Overall, seller financing and home-mortgage assumptions are now used only half as much as they were 12 months ago.
In short, it's back to the simple and basic home-mortgage loan. The key reason, of course, is lower interest rates. A report by the National Association of Realtors explains it this way:
''When home-mortgage interest rates soared to 15-16 percent and even higher during 1980-82, there was a sharp increase in the use of creative financing - the so-called people-to-people financing in which all or part of the home-loan amount came from the seller or other noninstitutional source.
''As interest rates dropped to the current 12-13 percent range, home buyers increasingly turned back to traditional loan sources, such as savings and loan associations. Since last summer, there has been a significant shift back to the use of first mortgages and less reliance on second and third liens.''
Addressing the now-hollow predictions that fixed-rate home mortgages were a thing of the past, the report adds:
''Clearly, the traditional fixed-rate, fully amortized, 30-year mortgage is not extinct. The improving health of the nation's lending institutions, combined with strong consumer demand for these traditional mortgages, is likely to keep home-buyer demand for fixed-rate mortgages strong for many years.''
Even though interest rates are now edging up slightly, this is not expected to be a major swing and probably will not affect the strong trend toward the revival of the single-rate, conventional home-mortgage loan.
Home sales are up about 33 percent over this same time a year ago.