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50 Year Mortgages

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15 and 30 year fixed mortgages were the norm are recently as ten years ago, when rising housing prices forced many to turn to the black sheep (in my mind) of mortgage loans – adjustable rate mortgages. Then came the twists on the ARM such as Option ARMs, which made your payment less than the interest that accrued each month (so your principal grew), and now, with rising interest rates, comes the 50 year adjustable rate mortgage.

So the thinking goes, the longer the loan, the lower the payment. While your overall interest payment will grow, it will put you into a much pricier house than what your income would allow (in a 30 year mortgage). The risk of course is that after some years, usually five, the interest rate will adjust and, unless we’re hitting a real slowdown, it will likely adjust upward.

Personally, I don’t like ARMs because five years is really not a lot of time (ask those folks who signed onto ARMs back in 2001) and the risks are simply too great for me, personally. However, given how much homes cost in places like California it comes as no surprise to me that there are folks looking at this option. It’s risky, obviously they know this, but homeownership sure is nice.

What do you all think about these new 50 year mortgages?

{ 13 comments, please add your thoughts now! }

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13 Responses to “50 Year Mortgages”

  1. CK says:

    Insane.

  2. Bald Man says:

    There is no way I can be convinced that this is ever in the best interest of the home buyer. This is about lenders capitalising on greed and envy.

  3. Dan says:

    As is their right.

  4. Bald Man says:

    High profits do not justify poor ethics. Having asid that, I’ll say the converse is also true: A poor financial education does not excuse one from the cost of poor financial decisions.

  5. frugal mama says:

    I once played around with one of those mortgage calculators and did a hypothetical 30 and 50 year mortgage calculation for approx. $200k at 7% for both time periods. Stricly P&I, no escrow, and the difference was about $150 bucks a month in payments, not to mention a MUCH larger total amount of interest to pay on the 50-year loan. If somebody’s running that close to the wire, they need to re-assess how much house they are looking to purchase.

    In my book, you buy a house to OWN it, not pay for it continually for the rest of your life. And say what we will about ethics… but a 50-year mortgage was conceived because there was demand for it. The whole problem comes down to sheer materialistic greed both on the side of the bank (to make money from the loan) and on the part of the buyer (to have a bigger house than the Joneses).

    ~fm

  6. Ethan says:

    At some point – probably passed long ago, in fact – you’re just renting from the bank with some (fading) chance of skimming some capital gains off the top.

  7. Debt Hater says:

    It’s the same a five-year loans on car — if you need that much time to pay it off, then you can’t afford it.

  8. Japan had this thing with 100 year mortgages thanks to their massive real estate boom in the 80s. That sad part is that the prices have been deflating ever since, meaning someone that got into an expensive home or condo is completely unable to get out of it thanks to it being worth less than half of what it was when they bought it.

    There is a strong chance that something similar could happen not only in the US but also other countries such as England. I don’t know how so many people don’t understand this, but the reason why real estate had a massive boom was largely due to low interest rates. People want a nice home, and they can pay more. Now the supply is exceeding the demand in many markets and people are waking up.

  9. Matt says:

    I have to wonder…where do these people expect to be getting money to make mortgage payments after 40 years? If they’ve had time to save up down payments, they almost certainly have to be at least 30 (or else wealthy enough to purchase a house on a 30 year mortgage). Which means that they’ll be liable for mortgage payments until they’re 80 years old. I don’t know about them, but I frankly don’t expect to be working full-time when I’m 80.

  10. Amanda says:

    I don’t think it’s a particularly good idea. I mean, I just don’t see why you would want to drag it out like that, and if you can’t afford the payments on a 30yr loan, then you probably shouldn’t be buying such an expensive home…

  11. E. Uriel Acevedo says:

    At risk of sounding like I’m “preaching to the choir”- here’s my two cents:

    Let me first start my disclosing- I’m a Financial Planner and have clients thought most of the United States.

    It’s alarming for me to see the amount of people all over the country who are “neck-deep” in all of these “fancy” types of mortgage arrangements. They are not only killing their OWN future but as a NATION we are killing our financial future by perpetuating the false idea that we must leverage our money by using “other people’s money”!!!!- It’s a bunch of HOGWASH!!!

    A 50 year mortgage is nothing more than a FINANCIAL PRISON!

    If you take a hard look at where the vast majority of your money is spent you will notice that the bulk of it goes to pay: INTEREST and TAXES. And that is a FACT!

    Yet all of the financial advice out there revolves around INVESTING rather than SAVINGS.

    If you TRULY want to get ahead, financially speaking, you MUST focus on CAPITALIZATION- THEN you can start worrying about investing…if not, we will continue to be a slaves to banks, credit card companies and the IRS for the rest of our life’s.

    If you do things the right way- there should be NO REASON for you to pay a mortgage for more than 12 years. That’s right! in an average of 12 years the majority of homeowners in the US can be paying themselves what they are now paying to their bank and saving that money for retirement instead.

    Please note that I am not advocating the use of 12 or 15 year mortgages either, because by using those type of mortgages you in fact are “crippling” yourself by tying up your money in your home- the key is to capitalize in liquid assets- this way every time you have a large capital need (i.e.: buying a car, college education, home improvements, medical emergencies etc.) you won’t have to run to a bank or credit card to borrow money- you’ll just borrow your OWN money instead, and pay yourself what you would have paid the bank- this way the money ends up in YOUR pocket instead!

    The best course of action would be to get the lowest FIXED interest conventional mortgage and incorporate a structured and disciplined SAVINGS plan (notice I said savings NOT investing- the difference is that in savings you have 0% risk of losing your money- the same CANNOT be said about investing).

  12. E. Uriel Acevedo says:

    Amanda, I’m afraid I left out a very important piece of information that has lead to your confusion. I apologize for that.

    You see the idea is NOT to drag out your mortgage for 30 years- it is to PAY IT OFF in 12-15 years out of your “structured and disciplined SAVINGS plan”- this way you may continue making the mortgage payments to Yourself INSTEAD of the bank for the next 15 to 17 years.

    For example: If you were paying $1,000 a month on your mortgage – after you pay-off your mortgage in 12-15 years you will then continue paying yourself the $ 1,000 a month- If you did that over the next 15-17 years you would end up with a significant amount of money in YOUR pocket not the banks pocket.

    In addition you will also be creating a significant amount of liquidity in your portfolio, thus avoiding the need to ever have to borrow money again. Imagine all the money you would save in interest over your lifetime!

  13. dave says:

    On an everyday, practical point of view… stuck with payments for more than even 7 years will be like always having to plan EVERY expenditure around the payments that would be made for like foreverr! That DOES create a financial prison, and I agree with frugal mama – it becomes a matter of greed. We’d rather just buy a house we can afford to pay off wthin 10 years or so!


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