The 30-year fixed rate mortgage is America’s most popular mortgage product and the foundation of today’s mortgage market. The lower monthly payment makes the loan affordable to lower and middle income borrowers. But most of the payments made in the early years of a 30-year mortgage only pay off interest, making it hard for borrowers to build equity in their home during those years. Earlier this year, we wrote about the superior equity-building and performance qualities of a traditional 15-year fixed rate mortgage. We noted, however, that the higher monthly payments on that loan would limit its appeal.
Over the last few months, others have opened up a discussion about the Wealth Building Home Loan (WBHL), a new 15-year mortgage product. While the precise parameters of the WBHL are not always clear, the basic idea is that money a borrower might otherwise have used for a down payment would be used to buy down the interest rate on the 15-year mortgage, thus reducing the monthly payment. The lower interest rate on the shorter-term mortgage would also enable equity to build—albeit from a zero base—more quickly than with a 30-year mortgage.