Financing affordable and sustainable homeownership with Fixed-COFI mortgages

The 30-year fixed-rate fully amortizing mortgage (or “traditional fixed-rate mortgage”) was a substantial innovation when first developed during the Great Depression; however, it has three major flaws. First, homeowner equity accumulates slowly during the first decade. Many lenders require large down payments because of slow equity accumulation. Second, in each monthly mortgage payment, homeowners substantially compensate capital markets investors for the ability to prepay. The homeowners might have better uses for this money. Third, refinancing mortgages is often very costly. Expensive refinancing may prevent homeowners from taking advantage of falling rates.