The 30-year mortgage has been the mainstay of American homebuying for decades. The 30-year mortgage came about as a result of the housing crisis of the 1920s. Back then, a typical mortgage was three to five years with a variable rate, and payments only covered the interest.
Often, large down payments were required. The most popular mortgage loan evolved into what is the 30-year amortized loan, which has become one of the primary reasons for increasing the level of homeownership in the United States. Amortizing means some of the principal of the loan amount is paid off each month, allowing homeowners to build equity and avoid a large single payoff of the loan. Interestingly, 30 years has become the most “reasonable” time frame to pay for a home, rather than 15, 20, or 40 years. This is because, in general, shorter-term payments are unaffordable, while jumping from a 30-year amortization to a 40-year amortization doesn’t really lower the payment that much.