Posted on 06/08/2006 6:39:37 AM PDT by Hydroshock
“It feels like a solution in search of a problem,” says Pete Bonnikson, vice president of mortgage operations for E-LOAN, describing the latest product to hit the home mortgage market: The 50-year mortgage.
Reportedly the problem this hyperextended loan addresses is affordability for homebuyers in high-cost areas. By stretching the repayment calculation over 50 years, so the argument goes, monthly payments fall by enough that borrowers unable to qualify for any of the other dozens of mortgage options can get a loan.
For certified financial planners like Nancy Flint-Budde in Salem, N.Y., it is a tossup as to whether helping people get around a standard option meant to keep them from overextending themselves is a good thing. “If they can not qualify for a standard or interest-only mortgage, this seems like a dangerous strategy,” she says.
(Excerpt) Read more at msnbc.msn.com ...
If it is going to take you fifty years to pay off a house...you need a different house.
What is needed is not 50-year mortgages. What is needed is a readjustment in prices to reality.
Yep.
Don't the Japanese have 100 year mortgages?
Who would live long enough to have a mortgage burning party?
When I bought my first house,the standard scenario was 30 year loan,20% down.
If I cannot afford the house paying 10%+ down and a 30 fixed loan I will not buy it.
Yep, but some can not afford that in some markets.
"What is needed is a readjustment in prices to reality."
I really think what is needed is a readjustment in expectations among younger homebuyers. An awful lot of folks pass by homes they could afford to buy with a conventional 30-year mortgage in favor of a McMansion that is beyond their means.
...and these mortgages tailored for unaffordable homes give people more paper money to bid up the market price so they can "get into a house." It sure seems like this merry-go-round is coming to an end.
The other thing is that in some areas of the country, supply must be allowed to catch up a bit to demand.
Well, reality is that people are finding extraordinary ways to buy at current prices (at extreme risk to their future financial health), so those prices are accurately reflecting demand. Once people start refusing to fall for the propaganda and decide that renting is a perfectly viable option and even a sound financial strategy in times when real estate markets are overheated, a price correction will come.
People today seem to have it backwards.
FIRST, you figure out how much monthly mortgage payment you can afford. (And if you're smart, you figure this on a 15 year mortgage.)
SECOND, you go house hunting, using that amount as a guide.
Why do folks insist in doing step two first? Then they need to get very "creative" (read, one foot on solid ground, the other in bankruptcy quick sand) in order to afford the house they want.
Not the house they need, the house they want. Big difference!
Well, here in the Twin Cities in MN, there's no shortage of supply. From what I understand, home stocks are up in most areas, as folks are not buying them as fast as they are available.
What I see in my area is older homes in good neighborhoods in the cities themselves are going unsold. Nobody seems to want to buy in the city. Everyone wants a McMansion in the suburbs.
It's funny, really. Young families, especially, could buy a 3/4 bedroom, 2 bath home in a good neighborhood in Saint Paul for under $200K right now. These are going unsold for over three months, while the young families buy a $350K twin home (read fancy duplex) in a suburban development.
Later, they'll whine about the high association fee and the high cost of their commute. Then, when their interest-only mortgage resets in 2 or 3 years, they'll be moving out anyhow.
Keep in mind that I'm not talking about inner-city neighborhoods, but subdivisions around the perimeter of the city.
I live in one of those neighborhoods, about two blocks from the edge of the city. Houses near me are going for around $200K. Cross the street into the neighboring suburb, and the price jumps to $300K, for an equivalent home. Worse, services like fire, police, and paramedics are much better in the city than in that suburb.
Strange decisions, it seems to me.
Most today feel they need to catch up with the Jones's. I purchased my 1st house for 28k at 27 yrs old,fixed it up and sold it 3 years later for 54k. Purchased house #2 at 84k,painted and re-landscaped and sold 3 yrs later for 119k. Now in my 3rd and last home at 46 with no real worry because I bought within my means.
You're approaching it the right way. Any young family should take a lesson from your home-buying plan.
Boy, sure sounds like diminishing returns. I suppose the difference between 50 years and interest only is that the 50 year loan is fixed rate?
At normal interest rates, the amount of an annuity (the payment) is relatively insensitive to the term (number of payments) once the term exceeds forty years. Besides, longer terms usually carry higher interest rates, offseting most of the advantage of a lower rate. This is really just a gimick, imho.
For instance a forty year loan at 6.5% is $585.46/month per $100,000 principal, while a fifty year loan at the same rate is $563.72. If they bump your rate a quarter point, to 6.75%, the payment becomes $582.63.
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