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@gman57 I’ve been noticing 9 year auto loans lately. You end up paying a lot of interest, and if you’re "lucky," you might still have negative equity. If you’re "unlucky," you could be making monthly payments long after your vehicle has seen its last days.
A mortgage this long would reduce a home buyer’s monthly payments, but the interest owed would be much higher
The Trump administration is working on a plan to introduce a 50-year mortgage to make it easier for Americans to afford homeownership. Mortgage analysts warn: Proceed with caution.
A 50-year mortgage would likely make it easier for buyers to qualify for a home loan compared with the standard 30-year mortgage, and the longer loan would result in monthly savings. But a 50-year mortgage would come at the cost of a significantly higher interest payment over the life of the loan, and homeowners would also be much slower to earn equity.
Some buyers are already turning to adjustable-rate mortgages to lower their monthly payments. A 50-year mortgage could provide another option to do so. Here’s how it would work.
Take a $400,000 home with a 20% down payment and a 6.22% mortgage rate, Freddie Mac’s estimate for the 30-year last week. With a 50-year mortgage, the homeowner would pay about $200 less a month than a 30-year term on the loan’s principal and interest. But over the course of the loan term, the owner would end up shelling out about $335,000 more in cumulative interest compared with a 30-year.
That estimate assumes that the 50-year mortgage charges the same interest rate as a 30-year. But a lender is likely to charge a higher interest rate to offset the credit risk of two extra decades when a borrower might default, said Jim Millstein, co-chairman of Guggenheim Securities. A higher rate could erase much or all savings in monthly payment.
All the while, the homeowner saddled with a 50-year mortgage term is building equity at a much slower pace than someone with a 30-year, because buyers are paying down primarily the interest for a longer period. A homeowner with a 50-year mortgage who sells after 10 years would walk away with about $38,000 less in equity than if the owner had used a 30-year loan, assuming the same rate for both.
There are other drawbacks. An extra 20 years of loan payments allows more time for major life events—such as divorce or job loss—that make it harder to pay back the loan. And with the median age of first-time home buyers hovering around 33 years old, a 50-year term means some people might never pay off their mortgage. Instead, the next generation would inherit the loan.
“Rather than passing down wealth and assets, we’re going to be passing down debt,” said Pete Carroll, Cotality’s head of public policy and industry relations.
Fannie Mae started purchasing 40-year mortgages in 2003 and expanded the program in 2005. Starting in 2014, the FHFA stopped allowing Fannie Mae and Freddie Mac to purchase loans with a term longer than 30 years. “A lot of so-called innovations occurred to make mortgages more affordable prior to the financial crisis,” said Millstein, who served as the Treasury Department’s chief restructuring officer from 2009 to 2011. “It proved to be a disaster.”
Pulte said the FHFA is also exploring whether it could make mortgages assumable or portable, which could help people either take over someone else’s low-rate mortgage or bring their low-rate mortgage with them from house to house.
Loans backed by the Federal Housing Administration and the Department of Veterans Affairs are already assumable, a feature that has attracted more attention in recent years. But it is very difficult for buyers and sellers to actually complete assumptions, and they often require the buyer to have a large amount of cash on hand to close the deal.
Comment: A really great idea, especially if the home is bought when the buyer is 12 years old.
Most people who take out mortgages go with a 30-year term. But President Trump wants the federal government to back a 50-year mortgage option for homebuyers — a plan that would be "a complete game changer," according to Federal Housing Finance Agency Director Bill Pulte.
Backers of the idea say it could help more prospective buyers get into a home they might not otherwise afford. But skepticism abounds, with Fox News' Laura Ingraham telling Trump this week that the proposal "has enraged your MAGA friends."
Ingraham cited "significant MAGA backlash, calling it a giveaway to the banks and simply prolonging the time it would take for Americans to own a home outright." That would help buyers in the short term — but over decades, buyers would end up paying much more.
Total interest on the 50-year loan would amount to $816,396 compared to $438,156 on the 30-year loan, a difference of $378,240. That's 86% more interest over the life of the loans.
Trump said the criticism is overblown: "All it means is you pay less per month, you pay it over a longer period of time. It's not like a big factor. It might help a little bit."
Comment: Trump said the criticism is overblown: it's only 86% more interest over the life of the loan. (How many times did Trump go bankrupt?)
Comments
Following are excerpts from a current report in The Wall Street Journal. (This should be a free link.) Comment: A really great idea, especially if the home is bought when the buyer is 12 years old.
Comment: Trump said the criticism is overblown: it's only 86% more interest over the life of the loan. (How many times did Trump go bankrupt?)
In about 40 years people will be able to say, "This mortgage has been in our family for generations".
@hank Yes, rent with an option to buy already exists.