OT: 50 year mortgages?

[badgervike]

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.

Try the math again.  Home equity has gone up on average of 4% per year for decades.  If you compound those 4% average equity increases annually, the value of your $400000 loan has increased your home value by $400k+ (depending on home price, downpayment)

[BigAl99]

Try the math again.  Home equity has gone up on average of 4% per year for decades.  If you compound those 4% average equity increases annually, the value of your $400000 loan has increased your home value by $400k+ (depending on home price, downpayment)

Run the numbers, I just did a quick calculation using online amortization sites, 400K @ 6% interest for 50 years.  You run the math and tell me what you get on a straight up table calculation.  When you say home equity(at the bold) did you mean, home value?  I thought we were talking about the econ of 50 year mortgages?  Fifty years, 400K and 6% are the real numbers, 4% is an estimate of the future situation, correct.  That 4% increase is also dependent on upkeep and maintenance, which have a cost. Most important is the desirability of location, Detroit at one time, that 4% value increase may have been a good estimate, look at it now.

[mblack]

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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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.

You say the risk is same yet someone is making more money. If the risk is same it means it’s not a solution however someone made more money with the 50 year term option. Again you made my point.

[badgervike]

Here's what you posted "After 20 years you would have 50K in equity, have paid 480K." If you just assume the $400000 is the entirety of the home value/loan....the increase in home value would be $472k and you will have paid $480k according to your calculation. The more likely scenario is that the original home purchase price would have been higher with a down payment and the home value would have increased by a larger amount... $536k in that 20 years.

Yep...just like any other home purchase, you need to be aware of the neighborhood. Inner ring of Detroit bad...Carbondale, CO good (close to Aspen) with an increase of 460.5% over the last 20 years. I was simply talking about home value changes on average for the entire country.

[mblack]

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.

Thank you

[badgervike]

You say the risk is same yet someone is making more money. If the risk is same it means it’s not a solution however someone made more money with the 50 year term option. Again you made my point.

I was responding to your comment "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."

Both the Conventional 30 year and a hypothetical 50 year loan could be underwater (by approximately the same amount) in the beginning but on average the home value will increase by 4% per year.

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Thank you

Still wrong answer.  Do you really believe 4% increase in home value per year for 20 years on a 400000 home is only $50k?  It's $16k in the first year alone (on average).  Now compound that increase and do it again...19 more times.  Year 2 would be 4% of 416k value would be a further increase of 16.64k in the 2nd year, etc. Do you really believe that equals $50k after 20 years? You're basically at $50k increase in value...after 3 years.

[BigAl99]

Here's what you posted "After 20 years you would have 50K in equity, have paid 480K."  If you just assume the $400000 is the entirety of the home value/loan....the increase in home value would be $472k and you will have paid $480k according to your calculation.  The more likely scenario is that the original home purchase price would have been higher with a down payment and the home value would have increased by a larger amount... $536k in that 20 years. 

Yep...just like any other home purchase, you need to be aware of the neighborhood.  Inner ring of Detroit bad...Carbondale, CO good (close to Aspen) with an increase of 460.5% over the last 20 years. I was simply talking about home value changes on average for the entire country.

Semantics, 50k off the 400k debt and it cost 480k to reduce your debt by that amount.  Your 4% is pure speculation, it doesn't take into account anything you have to put into the house, landscape, paint, repairs ...  The value of your house is what you can get for it, which is negotiable.  What you owe the bank is black and white legal debt, and not negotiable other than time which will cost you.

[medaille]

50 year mortgage is an insanely stupid idea. It is ignorant of what the real causes of unaffordable housing are.

Politicians who think that the only solution to people not being able to afford things is to allow them to get deeper in debt need to be replaced, because this way of thinking is a sickness. I understand that the right doesn’t want higher taxes and giveaways and the left doesn’t want people to go without, but this is not a good compromise solution as it further enslaves us all.

Things are supposed to get cheaper, not more expensive. Technology makes things cheaper. We all intuitively know this. Back in the 50’s, one person with an income could buy a home and support a family in 10-15 years on a blue collar job. By the time the 80’s rolled around, we decided that both parents needed to work to support a family and buy a home in 30 years. Now, your kids can’t afford a house at all. That is something broken with the economy, it’s not how things should be.

There are three root causes to our housing unaffordability crisis:
1. Lack of housing supply. When there is not enough housing to go around. People still need housing, so prices go up. We as a society need to figure out how to have a surplus of housing. There should always be empty houses sitting around, because that is an essential factor of keeping prices low. Also we need to separate houses as a building that physically exist and housing supply, which is how many are available to be lived in by a family that owns them. You can have more than enough houses for everyone, but still have a shortage if some people have too many (airBNB, rentals, etc.).
2. Limited restrictions on debt. We allow people to take out way too much debt. When you have a shortage of supply on something that is essential. They will take unlimited amounts of money to solve the problem. Same thing with medical expenses. You need treatment to get better. It doesn’t matter how much it costs, you will do it. When some people do this, the price inflates for all of us. The cost of a house isn’t it’s real cost. It’s how much in debt the least financially literate amongst us are willing to go into and that raises the price for everyone. There needs to be limits to how much a person can go into debt before we’re just talking crazy non-sense. I don’t think anyone should be allowed to get a mortgage for more than 15 years.
3. Fractional Reserve Banking. Most people don’t know anything about money. Fractional Reserve Banking is the noose that tightens around our neck and it mathematically guarantees that each generation will be more indebted than the previous generations, and it mathematically guarantees that we’ll never be able to pay off our debt. Practically all of our money is debt. Not governmental debt, but personal debt and commercial debt. It’s not treasury bonds. It’s not anything like that. The vast majority of our money comes from people taking out their mortgages and other debt. When you take out a mortgage you are further enslaving society in debt. What fractional reserve banking means is that the bank doesn’t have the money to loan to you. It has to keep a fraction of the total loan amount as reserves, but it creates new money during the lending process. So lets say you are getting a mortgage for 100k, that’s 100k new money entered into the economy causing inflation for the rest of us, and it is backed by you promising to pay the mortgage off. As you pay off the mortgage, you are destroying money, because the bank takes that money and cancels out what you owe them. Let’s imagine this loan had a 0% interest rate, just for understanding, but in this situation, the money you paid in would exactly cancel out the money they created for you. Now lets imagine a positive interest rate like 5%. This is not perfect math, but for simplicity in understanding, lets say that you paid it off in a year. The bank created 100k in money for society in the beginning, but you paid 105k to pay off the principal and the interest. The 100k gets destroyed as you pay off the loan and it is removed from society. But where does the extra 5k come from? It can’t come from the money you created. It has to come from some other person creating more money by going deeper into debt. Each mortgage we take out, makes society as a whole get deeper into debt, because the money that’s created also gets destroyed, but the residual amounts owed for the interest payments still exist. The bank uses this money to buy politicians. The most important thing we can do as a society is to return to sound, sane money.

[mblack]

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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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.

Again I agree with you. However, the same people who are giving us the 50 year term loan are the same people who ballooned the national debt and are doing it again.
So maybe they should not be making these decisions.
You can’t ask for the national debt to be solved and at the same time OK with the 50 year loan term.

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I was responding to your comment "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."

Both the Conventional 30 year and a hypothetical 50 year loan could be underwater (by approximately the same amount) in the beginning but on average the home value will increase by 4% per year.

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Still wrong answer.  Do you really believe 4% increase in home value per year for 20 years on a 400000 home is only $50k?  It's $16k in the first year alone (on average).  Now compound that increase and do it again...19 more times.  Year 2 would be 4% of 416k value would be a further increase of 16.64k in the 2nd year, etc.  Do you really believe that equals $50k after 20 years?  You're basically at $50k increase in value...after 3 years.

You seem to think many here don’t have houses.
Your numbers are fantasy and as you know value is not linear nor does it increase in an arithmetic progression. They may have worked for you but that is not the norm. You are the outlier , you know the select few that might benefit from the 50 year term. Most people will not

[badgervike]

Semantics, 50k off the 400k debt and it cost 480k to reduce your debt by that amount.  Your 4% is pure speculation, it doesn't take into account anything you have to put into the house, landscape, paint, repairs ...  The value of your house is what you can get for it, which is negotiable.  What you owe the bank is black and white legal debt, and not negotiable other than time which will cost you.

You're still not understanding.  Let's just make this simple and say that you have a $400k loan on a $450k home.  Your monthly interest payments would be $2382.45 all of which is interest at the beginning.  That's a total house payment of $286k over 10 years with virtually zero pay down on the note.  Now..that $450k home is increasing in value by an average of 4% a year.  That home is worth $667k or an increase in value of $217k over 10 years.  So..you've increased the value of your house by $217k and made TOTAL payments of $286k.  You're out of pocket $69k over 10 years for an increase in home value of $217k.  At that point, you convert that original 50 year note to a shorter term and you're good to go...especially if the interest rates decline.  The key is to wait for some equity to build in the house and interest rates to be at a reasonable amount and refinance.  That will cost you a small amount to refinance.

By contrast...you could continue to pay $2500 per month for rent (assuming rent never goes up..lol) over 10 years.  That's $150k out of pocket.

I just used simple numbers.  The reality is that yes..you will make investments in your house.  Rent will also likely increase over the years.  You will also have to have a down payment of some nature.  Pretty sure, the government doesn't want to get in the market of guaranteeing loans for those with no collateral and credit history once again.  Most of us remember the financial crisis when "everybody deserved to own a home".

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Again I agree with you. However, the same people who are giving us the 50 year term loan are the same people who ballooned the national debt and are doing it again.
So maybe they should not be making these decisions.
You can’t ask for the national debt to be solved and at the same time OK with the 50 year loan term.

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You seem to think many here don’t have houses.
Your numbers are fantasy and as you know value is not linear nor does it increase in an arithmetic progression. They may have worked for you but that is not the norm. You are the outlier , you know the select few that might benefit from the 50 year term. Most people will not

That value is the 20 year AVERAGE per year across the Country.  Your house is an investment just like all investments there's no guarantee but the AVERAGE rate of return is 4%.  I've actually done better than that over the years.  Some of it's due to luck and some due to planning.  A home purchase is your single biggest investment.  Treat the purchase as such.