Posted on 04/11/2022 6:51:46 AM PDT by Browns Ultra Fan
The housing and mortgage markets are addicted to gov.
MarketWatch had an interesting piece on mortgages entitled “Here’s how much a 40-year mortgage would save you each month vs. a 30-year loan. And the ultimate cost.”
To make a long story short, a 40-year mortgage, by stretching the payment out from 30 to 40 years, means that the mortgage mortgage payment declines from $1,687 to $1,504.
But with The Fed planning on taking away the monetary punchbowl, mortgage rates are rising making housing even more unaffordable.
But most things are not equal. The 40-year mortgage results in a slower paydown of the mortgage, increasing the lender’s exposure to property value declines. A 50-year mortgage would even be worse.
But the real problem with the 40-year mortgage is that it can lead to even MORE unaffordable housing. Yes, going from 30-year to 40-year mortgages lowers the mortgage payment, but a 40-year mortgage could increase the demand for housing. And since we already have soaring home prices since Covid (thanks to Fed monetary policy AND Federal government stimulus), we could actually see a worsening of the housing bubble). Particularly since REAL average earnings are declining.
What a mess that has been created by the government’s pursuit of “affordable housing.” Ideally, the Federal government could help raise household earnings through lowering of Federal tax rates, but the Biden Administration wants to raise taxes. Alternatively, lenders (and Fannie Mae and Freddie Mac) could lower lending standards (e.g., lowering required credit scores), or reduce downpayments to 0%. Lowering credit standards and reducing required downpayments are also inflationary and pose serious potential problems with default risk.
Yes, the US has a bad case of unaffordable housing. And the 40-year mortgage will make it worse.
(Excerpt) Read more at confoundedinterest.net ...
YOU WILL OWN NOTHING AND BE HAPPY!.............................
Not counting then extra cost by the government pushing the UBC.
Adding cost to building a house.
At the peak of the Japanese real estate bubble, they had 100 year mortgages. They magnified the bubble’s peak and the ensuing crash. From top to bottom, Japanese real estate lost 90% of its value. At the peak, the land on which the Imperial Palace stood in Tokyo was worth more than all of California’s real estate.
With inflation out of control, you will be paying back increasingly WORTHLESS dollars over a 40-year mortgage. Half way through the mortgage the $1,500 payments will be the equivalent cost then of the price of a loaf of bread.
From the article: “...increasing the lender’s exposure to property value declines....”
Where are home values declining? NYC? Chicago?
Where I live property values climb and homes are expensive. If a 40 year note can make the difference of buying a home or renting - FOREVER - I’d personally go for a 40 year note.
Renting is OK at many stages in life, but not forever.
Housing is expensive, true enough. If you WANT a home and you work hard you can buy a home. It’s been like that in my market for 40 years and still homes go up for sale and people buy them. We had to sell a car and I had to ride a bicycle for three years but we made it work.
Admittedly using some very simple math, one sees that going from a 30 year to a 40 year repayment increases the time of repayment by 33%. But the reduction in the monthly payment is far less than that 33%. Which makes me wonder if it really makes sense to do that.
Admittedly, this is a very simple calculation, and I did not prepare a monthly amortization schedule. Just saying that I question if affordability really is helped by adding 10 years to a mortgage payment.
Wow - must have skipped math class for the gender identity course.
bmp
At Year 30 of a 40 year loan, you’ll be kicking yourself “Why didn’t I take out the 30 year loan? I’ve got TEN more years of payments ahead of me. Groan!”
Of course, as Gnome1949 points out in #5, if inflation keeps roaring, that payment 30 years hence could also buy you a loaf of bread.
I question too, depending on one’s age, if you get a 40 year mortgage, it’s almost certain one will still be paying a mortgage in retirement. Which for many is not the best way to arrange your personal finances. But I know that’s a completely separate subject.
Well, 25 year old doesn’t have a household budget, to know where his/her money is being spent. Sadly too many young people have no concept of their personal financial situation.
We are a bit of an aberration. A year ago, we refinanced at 2.5% 30 year fixed after I retired and my wife was still working (she retired last summer). We could have paid off the mortgage, but prefer to keep the cash available for use in emergencies and other investments. Our house is in a hot area of the country where average Days on Market is 10 (even in the worst ‘08 real estate crash, it was only 85 DOM). Even in downturns, properties have continued to sell quickly.
We figured that inflation was seriously heating up and that our real estate and equities investments would do really well in an inflationary environment. So far, so good, but “stagflation” has me worried. Ten years of markets going sideways will be a real problem.
But, once the house becomes too much of a burden, we can always sell the place. Having been in it for 39 years, we have a good return, but I’d sure hate to pay the government the capital gains tax. We are both 70 and have a horizon of maybe ten years.
It’s going to kill the automobile market as well. Forget about the leftard dreams of making everyone purchase a $40K - 100K electron jalopy.
Lower payments and higher interest costs, this doesn't save anyone anything, it ends up costing MORE. Same thing on auto payments a 3 or 4 year is now 6 years because people can't afford the monthly payments, but the interest cost is killer.
For what I paid in taxes each yeah I could have paid-off my house in 4 years.
Instead I had a 30 year mortgage
A 30-year mortgage at 5%, with 20% down, on a $300,000 home, means you pay
about $223,000 in interest over the lifetime of the loan.
A 40-year mortgage at 5%, with 20% down, on a $300,000 home, means you pay
$315,000 in interest over the lifetime of the loan.
That’s over 33% more interest. Pure profit for the bank.
Never mind the problem of
a) neighborhoods going downhill
b) increasing maintenance costs
c) much higher chance of job loss
over 40 years.
Let alone being locked into payments from right after college (as if, you don’t have the 20% down coming out of college)
almost until retirement.
Banks are subhuman vermin.
This will start with commercial real estate, and then to residential.
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