OT: 50 year mortgages?

[badgervike]

The 50 year mortgage makes some sense for those at the entry level of the housing market. It keeps payments down for those that want to purchase a new home. Unlike it's alternatives such as a balloon mortgages, you don't have a big balloon payment staring you in the face in 5-10 years. For some, it's effectively paying rent. You can point out the interest payments but rent is also a historically bad investment. Most that opt for a 50 year mortgage will refinance when the economic conditions are better and their finances are in better shape. I'm not sure how that's different from a variable or jumbo mortgage except for giving the borrower the opportunity to refinance at the best time for them.

The reality is there is little inventory at the entry level due to rising building costs and 20 million recent immigrants many of whom are competing for those properties. I'm ok with a 50 year note. For those that never convert it...how is that different than a lifetime renter except for some tax advantages of home ownership?

The interest rates still need to come down so builders and buyers can secure financing at a favorable rate and costs need to be reigned in dramatically. We burned through a lot of lumber in the Covid days as many spent their vacation savings on remodels. At least lumber prices have started to decline in the last 6 months.

[purplefaithful]

My concern for those biting on the allure of the 600 mos payment plan is that "most" will be underwater when/if they make a move...

If the demographic of this 600 mos plan is similar to someone getting that 84 mos car loan? They are most likely well under the median income and its harder to convert to a more advantageous (to them) payment plan - ever.

In 7 years of selling cars for fun, I never once appraised a trade on a 72 or 84 mos car loan where the value sniffed the payoff. Wasn't even close. Houses dont (for now) depreciate like a car, but the amount $ interest + principle owed on that mortgage may very likely be significantly more than value of the property.

I suspect only the lending institutions will benefit from this and any potential for future generational wealth transfers from properties will be minimized or gone. You'll be passing along debt instead.

[mblack]

My kids' kids' will be set up for life once they pay off my 50-year mortgage (that I later re-fi'd into a 70-year mortgage). Oh and they'll have to use my will to pay off the HELOC that 78-year old me took out to buy for a new hip. But after that they will be SET. Granted, the quiet suburban home I thought I'd be passing down to them is now squeezed in between a Walmart and a prison. But all thanks to me, my family will be set up for generations, living the American dream

At the bold: This is hilarious, very true and sad at the same time

[badgervike]

My concern for those biting on the allure of the 600 mos payment plan is that "most" will be underwater when/if they make a move...

If the demographic of this 600 mos plan is similar to someone getting that 84 mos car loan? They are most likely well under the median income and its harder to convert to a more advantageous (to them) payment plan - ever.

In 7 years of selling cars for fun, I never once appraised a trade on a 72 or 84 mos car loan where the value sniffed the payoff. Wasn't even close. Houses dont (for now) depreciate like a car, but the amount $ interest + principle owed on that mortgage may very likely be significantly more than value of the property.

I suspect only the lending institutions will benefit from this and any potential for future generational wealth transfers from properties will be minimized or gone. You'll be passing along debt instead.

There's a big difference in homes and automobiles.  Automobiles depreciate almost instantly and will depreciate to nothing over time.  Homes typically retain their value at least and can increase dramatically over time.  Home values have increase by 27% since 2020.  Cars typically depreciate by 20-30% in the first year and 15 to 20% in the first five years. Big difference.

[Rigby]

$400,000.00 Mortgage comparison at 6%.

30 Year Mortgage
Monthly Payment - $2398
Total Loan Cost -  $863,352

50 Year Mortgage
Monthly Payment - $2106
Total Loan Cost -  $1,263,372

Math is hard.

[purplefaithful]

There's a big difference in homes and automobiles.  Automobile depreciate almost instantly and will depreciate to nothing over time.  Homes typically retain their value at least and can increase dramatically over time.  Home values have increase by 27% since 2020.  If you bought a car in 2020...what's the value now?

100% agree...

But - I strongly suspect that interest owed + principle will be significant when a 600 mos term is compared to a 30 year . I think its buyer be very wary and the long-term impact could be quite negative for our kids and children's children.

[badgervike]

100% agree...

But - I strongly suspect that interest owed + principle will be significant when a 600 mos term is compared to a 30 year . I think its buyer be very wary and the long-term impact could be quite negative for our kids and children's children.

Not much different than variable or balloon loans now. If you don't refinance over the term of a 50 year note...that means interest rates have skyrocketed over time (which makes that payment a steal)...or you're not managing your finances very well

[mblack]

The 50 year mortgage makes some sense for those at the entry level of the housing market.  It keeps payments down for those that want to purchase a new home.  Unlike it's alternatives such as a balloon mortgages, you don't have a big balloon payment staring you in the face in 5-10 years.  For some, it's effectively paying rent.  You can point out the interest payments but rent is also a historically bad investment.  Most that opt for a 50 year mortgage will refinance when the economic conditions are better and their finances are in better shape.  I'm not sure how that's different from a variable or jumbo mortgage except for giving the borrower the opportunity to refinance at the best time for them.

The reality is there is little inventory at the entry level due to rising building costs and 20 million recent immigrants many of whom are competing for those properties.  I'm ok with a 50 year note.  For those that never convert it...how is that different than a lifetime renter except for some tax advantages of home ownership?

The interest rates still need to come down so builders and buyers can secure financing at a favorable rate and costs need to be reigned in dramatically.  We burned through a lot of lumber in the Covid days as many spent their vacation savings on remodels.  At least lumber prices have started to decline in the last 6 months.

This makes sense on the surface but dangerous for the young home buyer. if you are an entry level home buyer:

• You probably have other loans (example school loans), an entry level job which will result to a low LTV. This will mean you will pay mortgage insurance which is a terrible way to start off. So that low payment will be 90% mortgage insurance and interest.
  
• You will have all your potential income maxed out to afford the house meaning you will be making pretty much interest payments for a long time
  
• You mention refinancing. So you make interest payments to refinance a few years later to realize you never paid the loan (so pretty much you were renting). And if god forbid the house depreciates in value you find yourself owing more than the house is worth.
  

A long term loan is only good for short term use but again a home loan is not something you consider short term given refinancing costs money and anyone rushing to buy a house without a significant down payment runs the risk of throwing away money in mortgage insurance.
In summary, you could rent, save money, pay off other debt and then buy a house on a less than 50 year term and still live to enjoy the house in your later years. 
This is not what an honest person would call helping the young home buyer unless such young buyers had a nice head start (and those are few and far between).

[purplefaithful]

Not much different than variable or balloon loans now.

Sure, all loans have some degree of risk. 

The radical term loan risk is a much slower equity growth. Equity will just be built much more slowly as a larger portion of initial payments go toward interest rather than principle. Banks will love it and it could spark another unregulated round of predatory lending tricks.

Slow/no equity build-up makes it harder to move or sell...I dont think many on these loans will have enough equity to even cover the selling costs. And how many of these sucking on the tit of a 600 mos term can even afford the upkeep of new windows, roofing, deck? 

It's all conjecture for now...

[StickierBuns]

$400,000.00 Mortgage comparison at 6%.

30 Year Mortgage
Monthly Payment - $2398
Total Loan Cost -  $863,352

50 Year Mortgage
Monthly Payment - $2106
Total Loan Cost -  $1,263,372

Math is hard.

Exactly.

How this could ever be defended is beyond me, it must be political because it makes zero sense outside in the real financial world of reality. The total of the loan cost goes up 50%. FIFTY PERCENT. You paid $1.2 million on a $400,000 loan. Tony Soprano wishes he had these rates. So save me your partisan rationale because nobody would want their son or daughter to make that deal.