50 Year Mortgage

[Poor Richard Saunders]

This only matters if you keep that original mortgage and never improve your situation. Seriously. It's like people think this is a zero sum game. You get a mortgage and then everything freezes that way and you cannot change anything... Suddenly every HELOC, every other mortgage you might get later vanishes from existence because you got a 50 year mortgage.

Saying that "some people" might have trouble doing that doesn't change that this is the normal pattern of mortgages since their inception.

I imagine that in the 1950s with the advent of VA Loans and the 30 year mortgage we had much the same arguments we are having about the 50 year suggested new term for first time buyers... Previous to that Mortgage terms were usually 3 to 10 years pre 1930s and from 1940 to when the FHA created the 30 year term it was 15 to 20 years...

And yes, when 30 year mortgages came about the exact same arguments "against" them were made.

The problem I see is that the payment for a 50 year loan isn't all that much different than a 30 year loan. Shorter term loans tend to have lower interest rates.
$200,000 loan, 15 years at 5%, 30 years at 6% and 50 years at 6.25%.
Payments are as follows -
15 year at 5% - $1581.59
30 year at 6% - $1,199.1
50 years at 6.25% - $1,089.95

The $400 a month difference is big enough that a 30 year loan would get you into a house compared to a 15 year. But the $100 difference per month isn't much of a difference. If you can't qualify for a $1200 a month payment, why would $1100 be a much safer risk?

 

[Poor Richard Saunders]

Generally speaking, that’s the pro ownership position.

In the case of the 50 year mortgage however, the first couple of decades are essentially like rent as you build up so little equity. And with how much interest you pay over the life of the loan, the usual ownership benefits just aren’t there.

When I bought my first home, one of the immediate advantages over renting was I got to write off the interest from my income taxes which meant a $1000 a month house payment was equivalent to a $850 rent payment.

Under the current tax system most people can't write off interest on their home because they don't have enough other deductions so they are stuck with the standard deduction.

 

[cawacko]

This only matters if you keep that original mortgage and never improve your situation. Seriously. It's like people think this is a zero sum game. You get a mortgage and then everything freezes that way and you cannot change anything... Suddenly every HELOC, every other mortgage you might get later vanishes from existence because you got a 50 year mortgage.

Saying that "some people" might have trouble doing that doesn't change that this is the normal pattern of mortgages since their inception.

I imagine that in the 1950s with the advent of VA Loans and the 30 year mortgage we had much the same arguments we are having about the 50 year suggested new term for first time buyers... Previous to that Mortgage terms were usually 3 to 10 years pre 1930s and from 1940 to when the FHA created the 30 year term it was 15 to 20 years...

And yes, when 30 year mortgages came about the exact same arguments "against" them were made.

People changing their situation isn’t guaranteed. And the math doesn’t change. You hardly build any equity for decades with a 50 year loan and you end up paying close to double the interest you would with a 30 year.

It isn't a benefit for the people who would use it and it does nothing to address the driver of high prices which is a supply issue.

 

[cawacko]

Usually you do. Of course your first mortgage is never your "forever home"... Well, it's possible it is, so I should say "almost never". It is far more likely they sell and use the equity to down payment and get a 20 to 30 year mortgage, then keep going. HELOCs to buy cars, etc.

I would not tell anyone not to leverage their equity, you should.

I wouldn't tell them not to. If it is what it takes to get them into a home rather than paying someone else's mortgage plus a little more for rent, I would go for it.

But Damo you don’t build much equity in the first couple of decades with a 50 year mortgage, and that’s the difference.

 

[Damocles]

But Damo you don’t build much equity in the first couple of decades with a 50 year mortgage, and that’s the difference.

This again assumes that prices freeze, and we are starting over talking in circles.

It is possible that for a few years prices stay the same, it is even possible for prices to drop, but that is the same for a 30 year mortgage and the same arguments were made when the FHA became a thing and 30 year mortgages were introduced.

The reality is: The pattern almost every American homeowner enters is as I described. They buy a first home, sell in 5-7 years at a higher price (remember they had to put down money so equity existed right at the get go, and now has improved because prices usually go up)... they have almost no equity from payments if they got a 30 year mortgage, but they have gained equity because of the price increase...

They sell, they buy a new bigger house with a shorter term mortgage, because they can afford it because their income and the prices of their homes are not static.

Saying you should not do this because it is possible that prices will drop and you will have "no equity" is bad advice. Of course they can lose their job, they can lose their job with a 30 year mortgage as well,, prices CAN drop, but they can for a 30 year mortgage as well. Telling people they should not act on something because sometimes bad things happen is silly. You didn't follow that advice, at least I hope you haven't.

 

[cawacko]

When I bought my first home, one of the immediate advantages over renting was I got to write off the interest from my income taxes which meant a $1000 a month house payment was equivalent to a $850 rent payment.

Under the current tax system most people can't write off interest on their home because they don't have enough other deductions so they are stuck with the standard deduction.

The interest deduction was a big help under the old system. The problem is that with a 50 year mortgage you’re paying so much interest over time that the deduction doesn’t change the basic math.

Even if the deduction came back for most people, you’d still be paying a lot more in interest and building equity much slower than with a normal 30 year loan.

 

[cawacko]

This again assumes that prices freeze, and we are starting over talking in circles.

It is possible that for a few years prices stay the same, it is even possible for prices to drop, but that is the same for a 30 year mortgage and the same arguments were made when the FHA became a thing and 30 year mortgages were introduced.

The reality is: The pattern almost every American homeowner enters is as I described. They buy a first home, sell in 5-7 years at a higher price (remember they had to put down money so equity existed right at the get go, and now has improved because prices usually go up)... they have almost no equity from payments if they got a 30 year mortgage, but they have gained equity because of the price increase...

They sell, they buy a new bigger house with a shorter term mortgage, because they can afford it because their income and the prices of their homes are not static.

Saying you should not do this because it is possible that prices will drop and you will have "no equity" is bad advice. Of course they can lose their job, they can lose their job with a 30 year mortgage as well,, prices CAN drop, but they can for a 30 year mortgage as well. Telling people they should not act on something because sometimes bad things happen is silly. You didn't follow that advice, at least I hope you haven't.

If I’m understanding you correctly, the basic argument is that the quality of the loan doesn’t really matter because appreciation will make it work anyway?

 

[Damocles]

If I’m understanding you correctly, the basic argument is that the quality of the loan doesn’t really matter because appreciation will make it work anyway?

I am simply stating it is a financial tool the same as the 30 year tool we used before. This was not a tool that existed for time immemorial either... The 30 year Mortgage came about with the FHA in the 50s. At that time people had much the same arguments against the 30 year Mortgage... (takes too long to pay, banks make more, etc.)

Not just appreciation will make the difference. The usual progression is folks also make more money, can afford more. They have kids and want to move to bigger houses with more rooms, etc.

The exact same thing that happens with 30 year mortgages, including very little principle is paid in the beginning of the loan, happens with these. They are just a tool that can begin the path to financial independence.

 

[cawacko]

I am simply stating it is a financial tool the same as the 30 year tool we used before. This was not a tool that existed for time immemorial either... The 30 year Mortgage came about with the FHA in the 50s. At that time people had much the same arguments against the 30 year Mortgage... (takes too long to pay, banks make more, etc.)

Not just appreciation will make the difference. The usual progression is folks also make more money, can afford more. They have kids and want to move to bigger houses with more rooms, etc.

The exact same thing that happens with 30 year mortgages, including very little principle is paid in the beginning of the loan, happens with these. They are just a tool that can begin the path to financial independence.

The issue isn’t whether it’s a tool. The pace of the amortization is the difference. A 30 year mortgage pays down fast enough that people build real equity from the payments. A 50 year does not, and it comes with almost double the interest over the life of the loan.

I’m not trying to appeal to authority here but there’s a reason so many are speaking out against this. It’s not a good deal for buyers.

 

[Lionfish]

 

[Lionfish]

 

[Damocles]

The issue isn’t whether it’s a tool. The pace of the amortization is the difference. A 30 year mortgage pays down fast enough that people build real equity from the payments. A 50 year does not, and it comes with almost double the interest over the life of the loan.

I’m not trying to appeal to authority here but there’s a reason so many are speaking out against this. It’s not a good deal for buyers.

It simply isn't enough of a problem. Very little is amortized in the first 10 years of a 30 year mortgage. A few thousand dollars... Yet they still are able to HELOC... because it is not a zero sum game.

If folks got a mortgage and lived with it that way forever regularly I might agree. But they do not. I know of exactly zero people with mortgages that are still with their first mortgage on any house anywhere.

 

[cawacko]

The problem I see is that the payment for a 50 year loan isn't all that much different than a 30 year loan. Shorter term loans tend to have lower interest rates.
$200,000 loan, 15 years at 5%, 30 years at 6% and 50 years at 6.25%.
Payments are as follows -
15 year at 5% - $1581.59
30 year at 6% - $1,199.1
50 years at 6.25% - $1,089.95

The $400 a month difference is big enough that a 30 year loan would get you into a house compared to a 15 year. But the $100 difference per month isn't much of a difference. If you can't qualify for a $1200 a month payment, why would $1100 be a much safer risk?

You nailed it. If the payment only drops a little while the interest cost jumps a lot, it isn’t really helping with affordability. A small change in the monthly payment doesn’t justify a huge increase in what you pay over time.

 

[Lionfish]

You nailed it. If the payment only drops a little while the interest cost jumps a lot, it isn’t really helping with affordability. A small change in the monthly payment doesn’t justify a huge increase in what you pay over time.

Is anybody forcing anyone to take a 50 year mortgage?

 

[Damocles]

Is anybody forcing anyone to take a 50 year mortgage?

The real question is, "Are they forced to stay with it?"

The only way these arguments are valid is if they are somehow stuck with the choice, cannot improve their situation in any way, never get raises and must pay off this 50 year thing in 50 years...

It's a tool, it is almost exactly the same kind of tool as a 30 year mortgage with the same advantages and disadvantages.

 

[Lionfish]

The real question is, are they forced to stay with it.

The only way these arguments are valid is if they are somehow stuck with the choice, cannot improve their situation in any way, never get raises and must pay off this 50 year thing in 50 years...

It's a tool, it is almost exactly the same kind of tool as a 30 year mortgage with the same advantages and disadvantages.

End of discussion.

 

[cawacko]

Is anybody forcing anyone to take a 50 year mortgage?

No one is forced to take this loan. It’s being floated by the government as a way to address affordability and people are speaking out against it because it’s a bad deal for the buyer and it would push prices even higher. That’s not good for the country.

 

[Damocles]

No one is forced to take this loan. It’s being floated by the government as a way to address affordability and people are speaking out against it because it’s a bad deal for the buyer and it would push prices even higher. That’s not good for the country.

The exact same, and I do mean exactly the same, arguments made in the 50s against the 30 year mortgage.

 

[evince]

It's an interesting concept that requires a lot more thought and discussion. Right now ppl are getting 7 year car notes. Depending on how they drive, their vehicle might be nearing its end by the time they own the car free and clear. Then they get another, and never manage to get out of car debt.

The house though might be different, if the home buyer intends to stay put. As they build equity (a lot slower process than with a 15- or 30-year mortgage), and their career advances with higher pay, they can pay extra towards the principle and probably pay it off a lot sooner. Otherwise it IS like rent. If you buy when you're 30, you'll be paying on it till you're 80 unless you can manage to pay it off sooner.

It might have some limited use

Generational home buying


Multigenerational habituating one property

Americans lived like that for hundreds of years

It solves many family needs

Childcare

Elder care

Deep emotional connections in a family are great for humans

I’m not apposed to it in a limited manner

It should be provided with a VERY LOW interest rate

 

[tigerred59]

A lot of ideas get floated that never go anywhere, and the 50 year mortgage will be one of them. Still, it’s a terrible idea. The pitch is that it lowers the monthly payment and opens the door for more people to buy a home. In reality it just pushes prices higher because it doesn’t touch the supply problem.

It’s the same issue with rent freezes. These things can sound good at first, but they don’t create more housing and they make the underlying problem worse. It creates less opportunity for (younger) people and makes our economy less dynamic overall.

I bought my modest 2 bedroom finished basement home in 1995, I was 36 years old. My last payment on my 30 year mortgage was this year. At 65 full retirement age, my home is paid for. The mere thought of 20 more years, is beyond discouraging, its just down right stupid......yes, rents are inflated and homes for so many is out of reach, but a 50 year mortgage at 35, you'd be 80 fuckin years old ready to fuckin die by the time your home is paid for, its the stupidest shit I've ever heard of, just to have a low payment???