50-year mortgage hits the market

NEW YORK (CNNMoney.com) - As home prices and interest rates keep rising, lenders have figured out a way to keep the dream alive for millions of people who want to own their own home. It's called the 50-year mortgage.

According to a report Wednesday in USA Today, a handful of small lenders have begun offering 50-year adjustable-rate loans to buyers who need to keep payments low in the current economic environment.

Most banks already offer 40-year mortgages, which account for about 5 percent of all home loans, the report said.

"One of the biggest things in California is the high costs of homes. With rates going up, there's demand from customers (for) longer loans," Alex Diaz Jr., with Statewide Bancorp in Rancho Cucamonga, Calif., was quoted in the report as saying.

http://money.cnn.com/2006/05/10/news/economy/economy_mortgage/index.htm?section=cnn_topstories

Good grief!

locations like SF, LA and NYC. I mean, I would never be able to buy an apartment here in NYC (and I'm talking about Manhattan either), but with a 50-year mortgage it may be easier.

ments like this one.

If everyone can qualify for a crazy mortgage like this, then the prices get bid up.

Soon, we'll all basically be renting our homes from the banks.

You think this is good for you, but it isn't.

People rarely pay off their home loans at the more common 30 year term and when they sell, they keep their equity. Normally, this equity is then transfered to another home. It's a savings account. If you literally rent, you are only building up the equity in someone else's property, while still having to make a monthly payment, most times much higher per square foot, than you would if you were paying a mortgage payment.

On most 30 year mortgages, the principal amount of the mortgage does not start being significantly reduced by regular monthly payments for more than ten years after the loan is originated. In a ten year period of time, people may move, or refinance. Equity in the first ten years is built mostly through a large down payment and/or appreciating property values. Property values appreciate when demand begins to exceed supply. Therefore, to have more eligible buyers on the market would be a positive thing for homeowners - especially, considering a good many of us do not have any sort of significant savings account. My savings are in my home. So, I'm happy, if the mortgage companies are providing ways for more people to own homes with lower monthly payments. It makes mine worth more.

What you are describing is a ponzi scheme. When there are no more new people buying at the bottom, a serious correction will result. Someone who buys in now on a 50 year note is taking a big risk. You might actually be forced to pay that note off or walk away from the house and be forced to pay a huge tax bill for the debt forgiveness.

In some areas of California and Oregon, you can buy a complete shithole for no less than $250,000. If you want something livable, with actual working indoor plumbing, you're looking at half a million or more. And if you're unlucky enough to be a wage slave making $12 an hour or less in these areas, supporting the fatcats of the economy and you want to live in or near the interesting places like San Francisco or Portland, a 50-year mortgage might be the only way to go.

However, your point is well-taken, because the 50-year mortgage isn't going to be offered to just the people I've described. It's going to be used by folks desperately trying to live beyond their means for whatever reason, not just survive in an area with an overheated real estate market.

It seems a very short hop (to me) from a 50-year adjustable rate mortgage to outright sharecropping or slavery. "St. Peter don't you call me, I'll only moan, I owe my soul to the Mortgage & Loan."

People are hitting their limit on credit cards.

If people could do simple math, this would be laughed off the table. Simply a temporary bail-out for the idiots who over-extended themselves and thought the housing bubble would never burst.

If you need a 50-year mortgage in order to afford a house, you might as well stick to renting. You'll be dead before you're able to pay the mortgage off. And that's IF you don't go into foreclosure because you bought a house you couldn't afford in the first place.

All that interest you pay is basically rent. You'd be putting down so little towards the principle that it'd be a joke.

And it has the added advantage (for the banks) that it drives up sale prices (since it allows more people of lower means to bid for the same house). And that's good for banks too, because it will force people to take out bigger loans in their efforts to outbid other potential buyers.

It may take a year or two, I can see that happening. Then we're right back where we started, except that instead of nobody being able to afford a house with a 20 or 30 yr mortgage, the ante will be upped to 50 or even 100 yrs??

A mortgage locks in the monthly payment; rent can be raised. A home with a long term mortgage is easier to sell because there is an existing mortgage.
I am 56 years old and recently divorced. I will never be able to own a home. In my neighborhood houses are $300,000 to $400,000 but perhaps a younger person with my same income can buy and build equity.

It's probably just me but I can't figure out how they relate?

The new buyer can take over the existing mortgage that is at a lower rate and get the difference only at a higher rate. It makes the property easier to sell.
For example if a property cost $300,000 and current interest rate is 6 %and there is an existing mortgage with a balance of $200,000 at 5%. The new buyer can get $100,000 at 6% and save a percentage point in interest on $200,000 by taking over the existing loan.

Thanks for the explanation. We paid off our house a few years ago. I'll never have another mortgage again...I hope.

n/m

This is a 50-yr ARM, not a fixed-rate mortgage. And the "adjustable" part of an ARM *never* gets "adjusted" down.

People who bought ARMs in the early-to-mid-90s made out like bandits. The word-of-mouth is one reason people bought them over the last five or six years.

There are also ceilings built into most ARMs, which protect the borrower if interest rates skyrocket. The ceilings vary enormously.

Sorry about the divorce. "They" should make it just as hard to marry. :)

you also forgot about the additional cost of home maintenance (which can be very expensive) and property taxes which must be considered when you buy a home. Sometimes it's just not a good idea to buy. If many people thought that way, we wouldn't be in the housing situation we currently are.

renters pay rent, period. When you own the place you pay for everything that goes wrong, large or small. If you are stretching to pay the mortgage and need a new roof, you are going to have to go deeper into debt, one way or the other. Either a home equity loan, if you have any, or the dreaded credit card. Hellooooo slavery.

no one said you had to stretch to pay the mortgage. If you can't afford the mortgage don't buy but if you rent you are not building any home equity.

a 50 year loan is insane unless you are counting on 20%/year appreciation and planning to flip the property.

Because when Mom and Dad are too old to pay the mortgage, the kids can keep it going. Scummy, thieving, devious bastards.

This is such an ugly way to keep us enslaved.

They are for people who plan to own the home for a few years, sell at a profit and get out.

...that's why the interest payments are front-loaded.

These are for people who live in areas where a starter home costs a brazillion dollars, or for house flippers. Mostly for house flippers.

With a 50-year mortgage, you can either buy more house for the same payment (on the theory that it's easier to turn a $265,000 house into a $300,000 house than it is to turn a $250,000 house into a $300,000 house) or the same house for less money (because it's easier to turn a $250,000 house into a $300,000 house if you've got $700/month to spend on renovations than if you've got $600/month for them).

OR...you can buy a couch. How many McMansion dwellers don't have them?

I like the idea of a 50-year option.

To avoid foreclosure, the key is to have a monthly payment that you can afford, even when things get tough. In many areas, this isn't possible with a 30-year loan, and if so, only under adjustables that are very risky.

With respect to buying above my means, I live south of San Francisco --everything is above my means and I'm decently-paid. In my area, 2 bedroom condos are 550k, a house is minimum 650k and this is outside San Francisco.

The people trying to buy those properties are not trying to be rich and greedy, just trying to have a stable place to live without having rising rents and properties sold out from under them and having to move.

Prices have come down quite a bit since then, and the typical mortgage in the Tokyo area is for 30-35 years.

to refuse to buy. Yes, I said "refuse to buy." Rent some place and invest your money elsewhere.

I know too many contemporaries who were saddled with large mortgages or who moved out into somewhere near the North Pole just so they could afford a house. They're now slaves to the house, and if they have to sell (due to job loss or divorce), they find that they've actually made very little on their investment, thanks to so much of the payment being interest and to the expense of maintaining and improving a house.

You are exactly right. Contrary to what many people have been led to believe, in situations like this renting is a better financial decision. When you can rent a home for much cheaper than what you could buy it then you should rent. Otherwise you are betting on price appreciation to cover the difference, that is speculation, it is more of a gamble than an investment.

as well, not to mention non-quantifiable "expenses" such as increased stress from long commutes, etc.

"for the children," and then you never see said children, because you're spending four hours a day on the road...