50-year mortgages? Are they kidding?!?

Discussion in 'Politics, Religion, Social Issues' started by Thomas Veil, May 10, 2006.

  1. Thomas Veil macrumors 68020

    Thomas Veil

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    #1
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    Excuse me for stating the obvious, but this sounds like crap. Hell, you could die before the mortgage is up, and if your kids couldn't finish paying it off, the bank could seize the house and return only the invested equity to the kids.

    And the rate is fixed for only the first five years? Please!

    This is a really dumb idea. To me it's just another manifestation of the weakened buying power of the average American.

    Though people have less savings and lower wages relative to their cost of living nowadays, I'm sure there have got to be better answers than this. And those answers have to do not with creating bigger and better debts for homebuyers, but with helping grow (not shrink) the middle class, and with bursting the real estate bubble.
     
  2. mactastic macrumors 68040

    mactastic

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    #2
    Not at all... I'd consider one if I was planning on buying a crappy house (in a nice neighborhood of course), fixing it up real nice, then selling within 5 years. Which I am.

    It might be the only way I get my foot in the housing market around here.
     
  3. zimv20 macrumors 601

    zimv20

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    #3
    the bit that surprised me was that it's adjustable. they can't do a 50 year fixed?

    i recently learned that when a friend of mine bought his condo, he did so with an all-interest mortgage. now that i think is stupid.
     
  4. emw macrumors G4

    emw

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    #4
    Same thing goes for a "standard" 30-year mortgage as well. Besides, the kids, who hopefully live in their own place, would probably just sell the house and take the equity anyway.

    I agree that interest-only loans are moronic. You're renting you're house, but are still responsible for maintenance and taxes. I can't comprehend that deal.

    And what about the "reverse" mortgages for seniors, where they eventually exhaust all equity in their home? That seems like a reasonable retirement idea I guess, but I don't know enough about the details.
     
  5. miloblithe macrumors 68020

    miloblithe

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    #5
    It depends on the market. If the value of the house doubles in three years, you can make lots of money (plus have a place to live) despite an interest-only mortgage.

    Personally, I'd avoid it if at all possible, but they can make sense if you plan on turning around and selling the house.
     
  6. UKnjb macrumors 6502a

    UKnjb

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    #6
    These things have been around in the UK for some time now - and I think I'm right when i say we have a higher proportion of owner/occupiers than USA? They came about as a result of increased house prices, high mortgage rates and there was a high probability that new-comers would not be able to afford the costs of entering the house-buying market. The only way out was to introduce the 50-year mortgage, accepting that, if nobody sold and moved on, then the children would at least inherit something. But sure, it was always regarded as rent under another name. They are no longer common, even though the house prices here keep rising and the fears of entering the market remain. 30 year mortgages are much more common and interest-only ones have always had a substantial share of the market. I think it is all swings and roundabouts, as house prices go up, houses get sold, equity gets released, home-owners die and kids inherit.
     
  7. yellow Moderator emeritus

    yellow

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    #7

    Unless your friend plans on flipping it.. or reselling it in a few years. While the all-interest mortgage is not the smartest idea, it's generally a lower monthly payment and a better interest rate (for the short haul).. And remember that all the interest you pay for your mortgage is a deductable on your taxes, so it's a good offset if you're having trouble tax-wise.
     
  8. zimv20 macrumors 601

    zimv20

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    #8
    you're betting that the property will appreciate at such a rate that it beats renting. with rents in chicago now what they were 10 years ago, and rampant rumors of a housing bubble about to burst, it doesn't seem a very good bet to me.

    afaik, he's not.
     
  9. yellow Moderator emeritus

    yellow

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    #9
    Hmm.. as silly as it may seem, even a crappy interest-only loan can end up being better for you than renting. Especially if you can hope to hold onto it long enough to "appreciate" 20% (5-7 years?) when you can refi into a real loan. You just better hope it appreciates enough before your arm/balloon comes due. :)

    Ultimately it's a step int he right direction to owning rather than renting, particularly in expensive situations like major metro areas (not including the Bay area.. that **** is just ****ing crazy).

    50 year mortgages however.. that's a suckers bet. I'd like to see the amoritization schedule on THAT one! Woo! Imagine if you actually paid ONLY your mortgage payment every month for 50 years... you'd end up paying like 7x the price of the house! Then imagine living in the same damn house for 50 years. <shudder>
     
  10. Deepdale macrumors 68000

    Deepdale

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    #10
    Value doubling in 3 years ... what in the world has seeped into the nation's water supply?
     
  11. yellow Moderator emeritus

    yellow

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    #11
    Don't know.. but in some places that (and more) has happened. It's crazy..

    My wife's boss purchased 45 acres in the eastern part of the county (which is pretty depressed), and that has suddenly become THE hotspot for condos and townhomes (same dif?) (because it was depressed). Well, the price he paid for 45 acres.. he was offered 6x the price, just 2 years later.

    All that is about to end, however.. the bubble WILL burst (if it hasn't already in your (general plural) area).
     
  12. miloblithe macrumors 68020

    miloblithe

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    #12
    Check out Washington, DC....

    It happens.
     
  13. Deepdale macrumors 68000

    Deepdale

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    #13
    The sheer madness is evident, but there is a notable difference between the value of acreage purchased in a depressed area vs. what the point of the OP seemed to be -- namely, the value of a standing house. The situation is still nauseating no matter how it is viewed.
     
  14. zimv20 macrumors 601

    zimv20

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    #14
    fwiw, if my friend had timed the market for the area in which he bought, he would have bought some 10 years ago.

    in related news, at the end of the month i'll have been in my house 10 years. in that time, i've seen > 3x increase in the value of my home (which i rehabbed, but most of the increase is tied to the land).
     
  15. floriflee macrumors 68030

    floriflee

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    #15
    That's depressing actually. I've worked hard a good six years to try and save up enough to put down 10-20% on a house (I had a couple hundred still saved after finishing college so basically started from nothing). After moving out here that savings will end up being more like 5-10% for what we are looking to buy. That's just sick!
     
  16. Doctor Q Administrator

    Doctor Q

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    #16
    Perhaps the way to look at a 50-year mortgage is that it's more like renting. You pay off the loan so slowly that you don't build much equity, so it's not an investment device. For the most part, you're simply paying by the month but getting a house instead of an apartment.

    Low-rate mortgages with huge balloon payments after 5 years are another type of loan that shouldn't be taken too seriously. Rather than paying a huge one-time amount, the homeowner is more likely to refinance after that time period, so the loan as written doesn't match the real plan. It's just a way to let buyers qualify for a mortgage and get started.
     
  17. IJ Reilly macrumors P6

    IJ Reilly

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    #17
    Sure, but I think the point is, it's dangerous to assume it will. The more people climb out onto limbs and into the leafy twigs of the housing market, the more likely it will come crashing down if interest rates take a jump upwards, or a significant recession comes along. That's what happened during the early 1990s here in California. Prices doubled and then some during the late '80s, people began to assume that they'd continue to go up like that forever. By the early '90s were were looking at negative equity, and foreclosures on every block, and values falling 30-50% for everyone.
     
  18. miloblithe macrumors 68020

    miloblithe

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    #18
    I do not at all disagree.
     
  19. leekohler macrumors G5

    leekohler

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    #19
    The bubble is about to burst. My neighbors have been trying to sell for months- no takers. They even have a "price reduced" sign on the place. They still can't sell. I've been waiting for the bubble to pop for a while. No way am I paying what they want for a condo in this town right now. And apparently from all the empty new buildings I've been seeing in the neighborhood, no one else is either.
     
  20. tristan macrumors 6502a

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    #20
    50 yrs is basically interest only for the first decade or two. I haven't run an amortization program, but my guess is that after 10 years you'd pay down less than 5% of your principal. Why bother.

    Interest only is fine if you're investing your money in other places. Paying down your mortgage principal is generally a bad idea because you can get usually better returns somewhere else, and you're reducing your mortgage deduction. Interest only is only dumb if your living paycheck to paycheck, saving nothing, and crossing your fingers that house prices won't fall - which in this market is delusional.
     
  21. mactastic macrumors 68040

    mactastic

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    #21
    Because you don't keep the place for more than 5 years! Why is this so hard to understand? These 50-year mortgages aren't for someone who is looking to buy and hold for the length of the mortgage. They are for those looking for entry into the market. What's the average length of stay in a homebuyer's first home? Not long.
     
  22. IJ Reilly macrumors P6

    IJ Reilly

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    #22
    If the property doesn't appreciate during that time, you've done no better than a renter, except for the mortgage interest deduction. If the value goes down, you're looking at negative equity.
     
  23. mactastic macrumors 68040

    mactastic

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    #23
    No disputing that point. However, at least in this area, I don't see prices actually falling anytime soon. Not increasing as fast, sure. But actual price declines?

    There's a lot of room between 20% annual growth and negative growth.
     
  24. Daveway macrumors 68040

    Daveway

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    #24
    So is this a way for people with modest incomes to somehow own million dollar homes?
     
  25. mactastic macrumors 68040

    mactastic

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    #25
    I suppose it could be. But considering that the median house price countywide here is above $500,000, and citywide above $600,000, I'd say it's more likely that people will be using these mortgages as I've described above - as a way to get their foot in the door so that they can make some money and get a better mortgage on their next house.
     

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