OT: 50 year mortgages?

[mblack]

I bought my first house in the Carter years when 30 year interest rates were in the 14% range.  I took the risk and financed with a balloon loan and hoped like hell the interest rates would come down within 5 years.  They did...thankfully..and the home increased in value by 50% in that first 5 years.  This 50 year option would have given me less sleepless nites.

That is great to hear. And like you said you banked on hope. Not to predate you or anything... How was the cost of education then? What was the cost of living then? or by the way, a 50 year loan team does not mean the interest would have come down. You could still end up with a 14% for 50 year term and then what if luck does not go their way?
There are ways the young generation can be helped to get into home ownership so they don't have to go through what you did and selling them the idea of a 50 year loan term is not it.
instead of having kids deal with countless variables when they buy a home how about we actually help them without them being on the hook for their lifetime if a single variable does not go their way?

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Sigh..that's not at all what I'm saying.  I'm saying that people's situations are different.  You're earning potential at 35 is significantly different than at 25.  The first 10 years of a 30 year mortgage and a 50 year are basically all interest.  If you get a 50 year note...you SHOULD refinance at some point when your financial conditions and interest rates are most favorable.  So after let's say 7-8 years, you're equity has typically increased in the 30-35% range and your payments have been less on that 50 year note than on the 30 year note and you've paid virtually no principal with either.  If you refinance at that point, what's the better deal?  Depends on your circumstances. 

And after 7-8 years of paying rent...your equity is zero.

Here in Madison at least, we have a very limited rental inventory which is keeping rents historically high....about the same as mortgage payments (including utilities /property taxes).

I hear what you are saying, I am saying it is not that simple.
If you want kids to buy homes faster by selling them a 50 year mortgage (note there is no reference on the interest rate) you also are privately selling mortgage insurance as like you said, their earning potential is not great at 25.
So using your example, given most kids at 25 these days already have significant debts, they will not only be paying interests on the loan. They will also have mortgage insurance to add to that. So they will be funding the big banks for the first 10ish years of their lives. Tell me a again who does that help?
On the contrary, what if they rented and saved up for down payment and got better credit and better LTV and bought a house at say 30. They would pay less interest, no mortgage payment, maybe a bigger monthly payment (based on on the down payment) and will pay the principal sooner (so less interest). Isn't that good?
So my point is, this 50 year idea idea sounds good and might help a few kids but it mostly is set up to help the big corporations especially with the changes of failure being greater when it is based largely on hope

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Sigh..that's not at all what I'm saying.  I'm saying that people's situations are different.  You're earning potential at 35 is significantly different than at 25.  The first 10 years of a 30 year mortgage and a 50 year are basically all interest.  If you get a 50 year note...you SHOULD refinance at some point when your financial conditions and interest rates are most favorable.  So after let's say 7-8 years, you're equity has typically increased in the 30-35% range and your payments have been less on that 50 year note than on the 30 year note and you've paid virtually no principal with either.  If you refinance at that point, what's the better deal?  Depends on your circumstances. 

And after 7-8 years of paying rent...your equity is zero.

Here in Madison at least, we have a very limited rental inventory which is keeping rents historically high....about the same as mortgage payments (including utilities /property taxes).

At the bold: Not to make this a political issue but I remember a certain candidate saying she had plans to add more houses to solve the low inventory. I agree with you that the low inventory problem should be solved. The 50 year term thing is just enabling the low inventory and is addressing the symptom not the problem

[badgervike]

That is great to hear. And like you said you banked on hope. Not to predate you or anything... How was the cost of education then? What was the cost of living then? or by the way, a 50 year loan team does not mean the interest would have come down. You could still end up with a 14% for 50 year term and then what if luck does not go their way?
There are ways the young generation can be helped to get into home ownership so they don't have to go through what you did and selling them the idea of a 50 year loan term is not it.
instead of having kids deal with countless variables when they buy a home how about we actually help them without them being on the hook for their lifetime if a single variable does not go their way?

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I was lucky...I went to college on scholarship for my undergraduate.  College prices have indeed skyrocketed.  Shouldn't we be trying to reign that in or maybe recommend that some of our high schoolers pursue work in the trades or equivalent?  Student loan interest rates for this school year are 6.4%.  When I went to college, the interest rates were in the 9% range and inflation was in the 13.5% range... far outstripping wage growth.  Jimmy Carter btw...nice man...terrible President.

[mblack]

I was lucky...I went to college on scholarship for my undergraduate.  College prices have indeed skyrocketed.  Shouldn't we be trying to reign that in or maybe recommend that some of our high schoolers pursue work in the trades or equivalent?  Student loan interest rates for this school year are 6.4%.  When I went to college, the interest rates were in the 9% range and inflation was in the 13.5% range... far outstripping wage growth.  Jimmy Carter btw...nice man...terrible President.

Lets see..

• I went to college on scholarship for my undergraduate.  A break (if I can use that) that most people don't get
  
• College prices have indeed skyrocketed.  Exactly, so kids most likely are graduating with huge debts
  
• Shouldn't we be trying to reign that in or maybe recommend that some of our high schoolers pursue work in the trades or equivalent?  Absolutely! So maybe we should do this instead of giving kids another path to debt. Oh I also remember a certain candidate talking about reducing the cost of college and opening mode trade schools
  

So again, you were one of the lucky few that not only got a scholarship to study but studied when the price of education had not ballooned which allowed you to buy a house early at 9% for 30 years. Now you are advocating kids who will be graduating with huge debts to buy a house for approx. 7% for a 50 year term. I don't get it. I am sorry
We both agree something needs to be done to help the future generation. However, the more we talk the more it is clear having them sign their lives away on a 50 year mortgage is not it

[StickierBuns]

The defense is that:

• You could refinance later
  
• You are not paying rent 
  

All terrible reasons and all based on the fact that the home owner has to keep doing more for it to almost sound plausible. It is a terrible and dangerous idea no matter how it is explained

And this "American Dream" of home ownership went away as soon as private equity real estate companies formed like Blackstone which bought up homes as a financial vehicle changed the landscape. They moved the goal posts and now they toss out a horrible alternative like 50% mortgages like its a real option, lol. Its like a Pay Day loan long game for a house, only its destructive quality isn't a high rate but time to pay. And don't think there won't be clauses that want guarantees that the debt can be passed on to relatives. The underwriters will make sure of this.

[mblack]

Here we go again with a "non-political" political shot at Trump.  Without diving into the details, home ownership is a huge advantage over renting.  Home ownership as the world currently stands is nearly impossible on the entire North American continent due to numerous factors.  Applied correctly 50-year mortgages present an opportunity to replace people renting their entire lives which is much asinine than the concept of a 50-year mortgage.  Viewed as a one size fits all solution, it would be dumb.  Viewed as a targeted way to replace renting with ownership, it's an interesting concept that should be explored further.  But at least you got to take your political shot at Trump in a forum that's supposed to veer away from politics.  Congrats on that.

I am just going to focus on the "fine print".
What do you mean applied correctly? How about a solution that does not need people to put their assets, livelihood or entire productive years at greater risk for it to kind of work?

[badgervike]

And this "American Dream" of home ownership went away as soon as private equity real estate companies formed like Blackstone which bought up homes as a financial vehicle changed the landscape. They moved the goal posts and now they toss out a horrible alternative like 50% mortgages like its a real option, lol. Its like a Pay Day loan long game for a house, only its destructive quality isn't a high rate but time to pay. And don't think there won't be clauses that want guarantees that the debt can be passed on to relatives. The underwriters will make sure of this.

No doubt that was a contributor...along with higher construction prices and financing...and housing for 20 million immigrants.  They have to go somewhere.

Debt passed on to relatives????  Your kids sell the house and terminate the note or the bank forecloses on the home.  They get their money.  As I said earlier, home equity increases on average 4% per year so the collateral only increases..

[mblack]

No doubt that was a contributor...along with higher construction prices and financing...and housing for 20 million immigrants.  They have to go somewhere.

Debt passed on to relatives????  Your kids sell the house and terminate the note or the bank forecloses on the home.  They get their money.  As I said earlier, home equity increases on average 4% per year so the collateral only increases..

Again on average which does not mean that is a given. I have worked with people that were screwed because they either never paid the principal on loans or their houses lost value. In both cases they lost the houses and still owed money and never realized the so called equity.
So again, this is not as simple as it sounds.

[badgervike]

Lets see..

• I went to college on scholarship for my undergraduate.  A break (if I can use that) that most people don't get
  
• College prices have indeed skyrocketed.  Exactly, so kids most likely are graduating with huge debts
  
• Shouldn't we be trying to reign that in or maybe recommend that some of our high schoolers pursue work in the trades or equivalent?  Absolutely! So maybe we should do this instead of giving kids another path to debt. Oh I also remember a certain candidate talking about reducing the cost of college and opening mode trade schools
  

So again, you were one of the lucky few that not only got a scholarship to study but studied when the price of education had not ballooned which allowed you to buy a house early at 9% for 30 years. Now you are advocating kids who will be graduating with huge debts to buy a house for approx. 7% for a 50 year term. I don't get it. I am sorry
We both agree something needs to be done to help the future generation. However, the more we talk the more it is clear having them sign their lives away on a 50 year mortgage is not it

If you're worried about our kids...how about we deal with the national debt?  At present, 15% of the total Federal budget is going to service the $38T in debt.  That boulder is rolling down the hill straight at our kids.  Shame on all of us.  So any solution that involves subsidized home loans for first time buyers...just makes home prices less affordable that don't qualify and adds to that National debt which our kids are on the hook for.

The trade schools have suffered for enrollment for years...because every kid needs to go to college you know  If you get average grades in high school...maybe college isn't your best investment.

Sign their lives away?  I've owned 6 houses in my lifetime and refinanced 5 or 6 times.  If the 50 year note doesn't work for you....don't do it.  If you decide it's not for you after a few years...you'll still likely net out a little gain from equity less real estate fees.

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Again on average which does not mean that is a given. I have worked with people that were screwed because they either never paid the principal on loans or their houses lost value. In both cases they lost the houses and still owed money and never realized the so called equity.
So again, this is not as simple as it sounds.

That's the same risk if it's a 30 year note or a 50 year note.  In fact, the longer the note goes...the more likely the house is to be above water.

[BigAl99]

Ran a 50 year 6% 400,000 mortgage amortization table.  After 20 years you would have 50K in equity, have paid 480K.   The difference in renters and home owner insurance premiums alone seems would seem to make renting the better choice.  This looks to be setting the bank up as a landlord that's not responsible for upkeep and maintenance.  So with the lifespan of ave. American at ~78, is there going to be an age. cap of 30 years, a lifetime mortgage.