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Another way to keep up with the Joneses!!!

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Hating the environment since 1994
    • Need to keep house payments low? Try a 50-year mortgage <!-- END HEADLINE --><!-- BEGIN STORY BODY -->


    Those struggling to afford a home may be wondering how long their mortgage payments can be stretched out.
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    The new answer: a half-century.


    A handful of lenders have begun offering 50-year adjustable-rate loans to buyers who need to keep payments low in the face of record home prices and rising rates.


    Most big banks already offer 40-year mortgages, which account for about 5% of all home loans, according to LoanPerformance, a real estate data firm. So far, only a few small lenders have rolled out the five-decades-long mortgages.


    "One of the biggest things in California is the high costs of homes," says Alex Diaz Jr. of Statewide Bancorp in Rancho Cucamonga, Calif. "And with rates going up, there's demand from customers (for) longer loans."

    Statewide, which introduced its 50-year loan in March, has received about 220 applications, Diaz says.


    For cash-squeezed buyers, the longer-term loans are another option. In California, only 14% of people could afford a median-priced home in December, when the median was $548,430, if they had to put down 20%, the California Association of Realtors found.


    The 50-year mortgage also signals that the cooling real estate market is heating up competition among lenders.


    "Mortgage lenders are getting craftier to get the attention of consumers," says Anthony Hsieh, CEO of LendingTree. But, he says, "The consumer needs to slow down and understand the product."


    Two issues to keep in mind: A borrower with a 50-year mortgage builds equity very slowly. And because rates on the loans are adjustable, borrower's monthly payments could rise.


    Still, the 50-year isn't considered as risky as an interest-only loan or a mortgage that lets borrowers pay even less than the interest.


    With those loans, a borrower might not build any equity and could end up owing more than a home is worth - called negative amortization.


    That's why Anthony Sanchez applied for the 50-year loan to refinance his California home. "I looked at a lot of different options," says Sanchez, 30. "I didn't want to be tempted with negative amortization."


    Mortgage experts caution that the 50-year mortgage is best-suited for those who plan to stay in their home for about five years, while the loan's interest rate remains fixed.


    "If you're going to be there more than five years, you're gambling," says Marc Savitt of the consumer protection committee for the National Association of Mortgage Brokers. "You don't know what interest rates are going to be. I wouldn't do it."
     
    fourteenandoh said:
    the total of the payments made over the life of the loan have to be absurd. this is off the top of my head but a 300K loan you'd pay almost 700 g's in interest
    Click to expand...

    Right you are:

    $300000 loan paid in 600 installments with a 6.5% APR - total payments of $1,014,690 ----> $714,690+ in interest.

    :shake:
     
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    Steve19 said:
    OK, but that's a bit of a misleading comparison. What would be the present value of all of those future payments assuming a 5% inflation rate? About $370k-$380k?
    Click to expand...

    True - $372,000+

    But, with a 30 year mortgage, you pay out a total of $682,633, total interest paid a $382,633. The PV of those payments is $353,227. Almost $20,000 in right now money and your house is paid off 20 years earlier. Just for the record, the payment would only be $200 more per month for those 30 years.

    That $200 savings per month for 600 months ends up being worth $533,730 50 years from now. The twenty years of no mortgage payment from years 31-50 are worth $672,007. In todays dollars, we're still looking at $46,543 vs $60,617, respectively.

    I love numbers! :nerd: :biggrin:

    I guess, more important in my opinion, is that people usually don't take mortgages like this with the intent to save and retire at the same age and then make payments from those lifelong savings. Rather, said person uses the extra money from the lower mortgage payment to buy "stuff" and ends up having to work into their 70's, or god forbid, is unable to work and someone has to take over the payments for them.

    I have no confidence in people to be using this as a method for savings, but rather suspect it is more likely a ploy used to, as Thump so eloquently put it, "keep up with the Joneses."
     
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    Bucky Katt said:
    True - $372,000+

    But, with a 30 year mortgage, you pay out a total of $682,633, total interest paid a $382,633. The PV of those payments is $353,227. Almost $20,000 in right now money and your house is paid off 20 years earlier. Just for the record, the payment would only be $200 more per month for those 30 years.

    That $200 savings per month for 600 months ends up being worth $533,730 50 years from now. The twenty years of no mortgage payment from years 31-50 are worth $672,007. In todays dollars, we're still looking at $46,543 vs $60,617, respectively.

    I love numbers! :nerd: :biggrin:
    Click to expand...

    I'am so freakin' beyond lost.
     
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    im actually a little surprised its taken banks this long to start offering these types of loans. for a home lending service this is without question one of the best loans on the market "for them". you could essentially have an entire neighborhood paying a housepayment literally forever.

    if you buy your house at 30 with a 50 yr loan you stop paying at 80. at which point your on a fixed income and can't afford the loan anymore. so you sell to get what equity you have so you can retire and the cycle continues.

    with the entire country moving into more of a "lease" mindset. i would imagine these types of loans will get a warmer response from those in the market for a new home than many of us would like to think. and i would imagine banks will push these pretty hard.

    best part of the article is that these are arm loans... buwahahahahaha!!!!
     
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    It seems to me like people with a 50 year mortgage are essentially renting their house. Of course they don't get the benefit of the landlord making all the repairs, new roof, new furnace, air conditioning, siding, etc.



    You are better off renting a house than buying one on a 50 year loan....Unless the property value in that specific area is going up like crazy.
     
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    Actually DC and HI are higher cost than CA for housing.
    Ohio ranks 23rd for total cost of living and has one of the lower costs for homes. That is deceiving as I think Youngstown is at the bottom of the barrel for average home cost and that drags down the rest of the state.

    It ties into the threads on politcal board. At some point the bubbles will bust. You have to hope you are not in one of those locations or just bought at the max.
     
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    Tlangs said:
    It seems to me like people with a 50 year mortgage are essentially renting their house. Of course they don't get the benefit of the landlord making all the repairs, new roof, new furnace, air conditioning, siding, etc.

    You are better off renting a house than buying one on a 50 year loan....Unless the property value in that specific area is going up like crazy.
    Click to expand...

    not really, the big thing people have been doing lately is using their home to kick start their retirement. you buy a house, raise kids, the kids go away, you want to retire and can live someplace smaller. well, the equity you built in your house affords you the option to buy something smaller and likely have some cash left over. the same conscept applies with a 50 yr loan, you just build equity slower and likely will have to wait a few years more to retire.

    MililaniBuckeye said:
    No way will I lose out here in Hawaii. I bought my house in Dec '98 for $243,000 and it's now "worth" around $500,000. Unless a major natural disaster or a massive plague happens here, I'll always come out ahead...
    Click to expand...

    yeah! what could possibly go wrong on an iddy biddy island in the middle of the ocean with... how many active vulcanos again? :biggrin: seriously though, beachfront property will always be in demand. expecially in your situation your safe. but lets say prices continue to increase and your house goes up to 700k. lets say your neighbor decides thats high enough and sells. then the bottom falls out of the housing market. your 700k house drops in value to 590k. your happy as can be right? more than double what you originally paid, life is good. but for the poor slob who paid 700k for the house next door... he can't sell... he can't refi... he's essentially fucked. hard.
     
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    I would worry more about a neighbor that is over their head and has to dump a home.

    The other issue is what income is necessary to pay for the home ownership. If it gets too high perhaps multiple families will live in one home or an owner takes in renters. It can have a effect on the neighborhood and home values.

    How often is the home assessed? Higher taxes can drive out some folks on fixed incomes. That is one issue that might sneak up on some homeowners.

    How about it Mili, are you paying taxes on $240K or $500K. Do you know what the difference would be?
     
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