50-year mortgages may not be golden

http://www.msnbc.msn.com/id/13187964/ ^ | 6-7-06 | Gayle B. Ronan

[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.

[P-40]

Not the house they need, the house they want. Big difference!

I've got plenty of friends that bought big houses that came with payments big enough to cause hardship. They bought a big house because....they sell for more and they plan to sell one day. Big houses also take a lot of money to maintain and suck down a lot of energy. The better option is to take the smaller home and pocket the difference...and take the shorter term mortgage.

[absolootezer0]

When I bought my first house,the standard scenario was 30 year loan,20% down.

and that's the problem, no one puts 20% down any more. anyone with decent credit can buy a house with 0 down. but if for some reason the mortgage company can't make it work, they'll send in their on-staff appraiser to appraise the house 10-20% higher.

[B Knotts]

From what I understand, home stocks are up in most areas, as folks are not buying them as fast as they are available.

Yeah, I was thinking more of the West Coast, where generally, housing is not oversupplied (although there is some abundance of rentals).

Could the issue in the case you cite have to do with taxes?

[Sabatier]

"older homes in good neighborhoods in the cities"

I see the same phenomenon around here. The older homes are much better constructed compared to the new homes, which are made out of chicken wire and styrofoam and jammed on top of one another.
The problem is the schools in the older neighborhoods are filled with immigrants' kids. The people who choose the 'burbs don't want their kids picked on for speaking English.

[1234]

...problem is the schools in the older neighborhoods are filled with immigrants' kids.

a Russian real eatate saying: "you don't buy your home, you buy your neighbors".
property values are a 'funny thing'; status issues are part of the 'calculus': the 'upwardly mobile' don't want illegal aliens in their backyard, so to speak.

[riverdawg]

"The older homes are much better constructed compared to the new homes."

In many ways, yes - in some ways, however, no. In pre-1970 homes, the plumbing, HVAC, and electrical systems are going to be well below today's standards unless they have been upgraded recently. The big problem with older homes for many buyers is the basic design and layout - 8-ft. ceilings, small bedrooms, tiny bathrooms, and cramped kitchens. Some of these features can be changed, but only at exorbitant cost, in which case you are back up to the price of the newer homes.

[riverdawg]

"you don't buy your home, you buy your neighbors"

A very wise saying. In my relatively low-cost, mid-sized city, a perfectly decent $180,000 house will come with neighbors who park junked cars in the driveway or on the street, party half the night, and mow their grass every 5 or 6 weeks (whether it needs it or not!). By spending $250,000 or more for a bit larger house, you price out the worst of the riff-raff.

[1234]

...By spending ...more...you price out the worst of the riff-raff.

part of your statement has the potential of becoming 'a saying'!- a good variation on the old Russian saying.
when i was shopping a coupla years ago in a rural area, i told the realtor i was allergic to the sight of trailers in the vicinity.

[dakine]

In perspective...loans used to be up to 12 years, and for 60% and occasionally for as much as 75% of property's value...

Just another change...

[Solar Wind]

Mineral Man,

Thanks for your comments on the Twin Cities. Some of the closer-in neighborhoods that were considered the suburbs 50 years ago do have some nice homes though the lots do tend to be smaller and the rooms smaller too. A friend of mine tried selling the family home south of the Little Canada neighborhood last year and it took six months to do it. He worked that time out of state at his new job while his wife stayed behind to sell the home.

You were wondering why new families move out to the suburbs. A big reason is crime. Nothing scares people trying to raise a family out of a neighborhood faster than crime.

Look at last night's news. A cyclist shot in the leg down on 30th. Then there was the man shot in the face and killed while walking in Uptown earlier this year. The murder on block E. Then there are the roving Somali gangs robbing and beating people up in Minneapolis. (To those out of state this is not a joke or sarcasm.)

When the people are interviewed in the neighborhoods about the crime what do they say? "This never happens around here. This used to be such a nice area." But crime is happening and infecting a widening circle around the Twin Cities downtowns.

The shootings and robberies in the neighborhoods surrounding the Twin Cities downtowns are a major factor in pushing people raising families to the suburbs. Young singles and childless couples are pushing growth in downtown lofts and condos but that is another market.

I will give you a real life example. Just a few days ago I was participating in a showing of a home to a family with young children. The wife came up to me and almost her first question to me was "What is the crime like in this neighborhood?"

Different people have different needs. Singles and retireds have different needs than do families raising young children. As a result they tend to like to live in different neighborhoods.

Regards, Mr Sol.

[Gay State Conservative]

In perspective...loans used to be up to 12 years, and for 60% and occasionally for as much as 75% of property's value...

Amazing.I learned a good lesson from my (Depression baby)Dad when he had the family homestead (4 BR Colonial,upper middle class Boston suburb) completely paid off in nine years.

The thriftiness and financial prudence I learned from him has served me very,very well over the years.

[TET1968]

That's how they do it in Bermuda. The children and grandchildren take over the payments.

[Protagoras]

If I cannot afford the house paying 10%+ down and a 30 fixed loan I will not buy it.

If you want to save a huge amount of money, wait until you can do a 15 yr mortgage.

[Protagoras]

and take the shorter term mortgage.

Bingo!

[linda_22003]

That reminds me of a scene in the JP Marquand novel, "The Late George Apley", written in the 1930's and spanning the life of a Boston Brahmin. The Apleys lived in a genteel part of Boston; one day around 1900 or so, Apley's father sees the man across the street come out to sit on the front steps of his house in his shirtsleeves.

His father put his house on the market the next day; that was solid evidence the neighborhood was on a downhill slide.

[Old Professer]

I'd be happy if they could remember how to make 50-year houses.

[Old Professer]

Old George would have fainted dead away at the sight of Paul Newman in Long Hot Summer with his bare-chested billboard physique, engaging smirk and brilliant blue eyes.

[linda_22003]

Well, I very nearly did, too. ;-D

[Pilsner]

Different people have different needs

I know of a guy who remodels houses near downtown San Antonio. The neighborhoods are in transition, with many fine old Victorian homes, and a lot of junk. The schools are bad, and some street crime, but downtown, and all its cultural attractions are right there. He restores the old Victorian homes, puts in a good security system, and sells them to homosexual couples who don't have kids to attend the bad schools or get mugged on the streets.

[MineralMan]

"The problem is the schools in the older neighborhoods are filled with immigrants' kids. The people who choose the 'burbs don't want their kids picked on for speaking English.
"

Yeah, my neighborhood is full of all sorts of different ethnic families. There are Hmong, Somali, Black, and Hispanic families. 90% of the homes are owner-resident. Everyone is friendly. All the kids play with each other, and even the teenagers are respectful and friendly.

The key is home ownership. Families that invest in their homes tend to be more stable. Yesterday afternoon, the Hmong family two doors down from me was taking photos of their son, who was graduating from high school. He was in his cap and gown out on the front lawn. They were taking turns being photographed with him, but there was always at least one family member out of the picture. So I walked up there and asked Mr. Vang if I could take a picture of the whole family. He was glad I did. I congratulated the new graduate, who speaks perfect English. The grandmother in the family speaks very little English, so I greeted her in Hmong.

It's just a neighborhood.