50-year mortgage debuts in California

[Roland99]

http://www.bankrate.com/exct/news/mortgages/20060427a1.asp?PG=home&SEC=high1

Think of it as a mortgage that has been supersized. Like that other supersizer, McDonald's, the massive mortgage was born in Southern California's San Bernardino County. Statewide Bancorp of Rancho Cucamonga began offering the loan in late March, to California residents. Advertisements have yielded a lot of phone calls and "quite a few applications," says Alex Diaz Jr., vice president of Statewide.

Half of first-time home buyers are 32 or older, according to the National Association of Realtors. If those buyers get 50-year mortgages and never refinance or make extra payments, they won't pay off their loans until they're well into their 80s. Would they be crazy to get loans that amortize or pay off the balance over 50 years instead of the standard 30 years? Not at all, Diaz says.

Getting a 50-year loan is a perfectly rational way to avoid an interest-only or payment-option adjustable-rate mortgage, he says. :wow:

With an interest-only mortgage, the minimum monthly payment doesn't put any money toward principal. A payment-option ARM goes a step beyond that: In some circumstances, the minimum monthly payment doesn't even cover the interest accrued that month. You make a minimum payment at the beginning of the month, and four weeks later, you owe more than you owed before the payment. This condition is called negative amortization, or "going negative."

HALF A CENTURY to pay off a house!

[Robbie Michaels]

1. Yep

I guess that guarantees the housing bubble won't burst. All the investors can refinance into these loans and wait out the next upward cycle.

[flvegan]

2. The title insurance industry there must be loving that.

50 year searches in the future? Wow.

[chaumont58]

13. I used to work in DP in the title insurance industry

I not sure it means anything other than a smaller P&I payment on a monthly basis. It used to be the average house in California turned over every seven years, very much less than the average 30 year loan. And nothing magical about a 30 year loan. Most title chains will start with the last policy, called easy enough a starter.
This is another wrinkle from the loan industry.

[Roland99]

18. Good point. This sounds like a way to get more people to qualify

for an interest-only loan.

[Progressive4Life]

3. Remember the monthly mortgage formula from algebra class?

I'd hate to be on the receiving end of the interest on one of those bad boys!

[Roland99]

4. As the article states, it's essentially an interest-only loan.

That's just MADNESS.

But, what else to expect from a president that touts an "ownership" society. He just neglected to say that it's the banks that will be doing the owning.

[salin]

6. Indeed - "it's the banks that will be doing the owning"...

how foolhardy. Invest in something that leaves debt, rather than equity when one passes before the 50 years pass.

With this - why buy? I would guess it is quite some time before one is building any equity. Go a little cheaper - set the difference aside towards a down payment for real equity - and rent.

This turns on the head the whole idea of the point of buying a home = investment and building equity.

[mcscajun]

9. If you read the entire article, it Does amortize the principal.

For a while, anyway. The excerpt only refers to Interest-only loans for comparative purposes.

However, the article does mention that once you've run out the amortization (without explaining how they figure that or when it occurs, most loans being front-loaded in terms of interest) it becomes an interest-only loan. I'm not even going to think about this...I'm on the 4th year of a 15-year conventional fixed-rate mortgage. :)

[never_get_over_it]

22. Good move

when I bought my first home - I had to get a 30 year fixed - I figured out how much the house would really cost me over that 30 years and as soon as I could I moved to a 15 year fixed which was only a little more expensive than the 30 year fixed - whenever I can I pay more on principal - I have paid the house down to 50K and most likely in less than 20 years it will be mine no mortgage payment - and just think I ended up saving at least 120 mortgage payments - think about that - pretty cool.

[mcscajun]

24. Indeed. My 15 is a refi from an original 30

I cut 3 years off the term and reduced my payments AND my rate (substantially). I was very glad I'd done it when I was laid off six months later. :)

[SoCalDem]

5. 2 & 3 year loans were common for new cars once too..

with payments under $100.00 a month

[TheCowsCameHome]

7. Great. I'll take one out when I'm 90

Good luck collecting on it, Bancorp.

[Kingshakabobo]

21. I just wrote a 30 year mortgage for a 70 year old couple.

They both had a good chuckle about it. The loan made sense for them as they had plenty of equity.

[mcscajun]

8. Getting Second-Degree Burns, I suppose

is so much more preferable than being Flash-fried. HUH?

A 50-year Mortgage?!?! :wow:

Interest-only loans are massively illogical; payment option ARMs a giant leap of illogical beyond that.
If you want to be Technical about it, ANY loan that actually pays interest and principal over whatever term is more "logical", if Interest-Only loans are measured as 95% illogical, payment option ARMs as 100% illogical, and 50-year mortgages as 90% illogical. There's a quantifiable difference. But They're all still MASSIVELY ILLOGICAL! So would someone, if they can, explain where "rational" enters the picture?

If you must take a loan in the first place (and to purchase a home, most people Do) Please, please, please, PLEASE make sure it's one that actually PAYS BACK What You Owe over a manageable term! 15 is great, 20 is fine, 30 still is in the ballpark. Now, remembering that a 30 year mortgage more than doubles your actual purchase price for your home, try and picture what a 50 year mortgage will do to that same purchase price.

[ShaneGR]

10. Keep in the mind, the payment makes it HARD to default...

That's the one thing, certainly the banks and assorted abstract companies stand to make more profit from a 50 year mortgage, but low income buyers are also at an advantage because their payments are nearly cut in half. Cutting down on foreclosures?

[Roland99]

11. Caveat Emptor but how many actually will?

This is so anti-consumer it's scary.

[bleedingheart]

12. permanent debt is what this represents....

this is the stupidest thing I have ever heard of...I am so sorry if homes cost that much that you must stretch out payments over 50 years...then I would consider moving elsewhere to find affordable housing....

the interest on this type of loan would be astounding...

[madaboutharry]

14. People need to understand that

it is really sometimes better to live in an apartment. I couldn't imagine living with this arrangement.

[NJ Democrats]

15. 50 years!?

30 seems forever, imagine 50!

[EVDebs]

16. Property tax is about 1 and 1/4 percent of sale price ...

and at start year of that sale under Prop 13 your prop taxes can go up 2% annually from that start year. With some county's median home priced at $550,000 (and the Bay Area being even higher in many places), it is not possible to continue living in the area unless everyone in the family is working, it seems to me.

The only thing keeping people in their homes is the ability of families to pass along the home, at the same prop tax rate, to a son or daughter transfer. But reassessment will kick in at the time of a sale.

No one in the county I live in will be able to afford a home in the county if prices continue to rise.

Essentially, as in Europe (France ?) a 50 yr mortgage is encumbering your children, but if they're going to benefit from living in the area, I'm all for it since it keeps monthly payments low.

[girl gone mad]

17. Let the meltdown begin.

These were common in Japan just before their bubble burst.

[dcfirefighter]

19. All in the pursuit of ever-increasing home prices

Rabidly defended by home-owners, at the expense of those yet to buy.

You cannot have constantly appreciating home prices benefit both owners and renters.

[Az_lefty]

20. Won't make any real difference...

30 years at 5.75%
Loan Amount of $ 200,000.00
$1,167.15 a Month

50 Years at 5.75%
Loan Amount of $ 200,000.00
$1,016.05 a Month

your just paying more interest up front and building up equity slower.

[Jim Warren]

25. Won't make any real difference?

$1016.05 x 12 = $12192.60 x 50 = $609630.00
$1167.15 x 12 = $14005.80 x 30 = $420174.00 = difference of $189456.00

[jmowreader]

23. If you're flipping the house it makes sense

I found someplace that said today's mortgage interest rate on a fixed mortgage was 6.13%.

With zero down...

$250,000 for 30 years is $1519 per month

$283,500 for 50 years is also $1519 per month

The average homeowner stays in any one house for seven years. Let's say it's five. You're of course gambling that home prices will continue to rise and that you can sell an existing home in five years, but it's easier to make big bucks on a flip if you START with a higher-dollar home.

I don't think this bank expects any of the 50-year mortgages they write to be held for 50 years. But the realty market will love these loans because they can either put people into more house for the same payment, the same house for a lower payment, or inflate the prices of all the houses in the market.

Let's say I stay with the moran preserve and get promoted to assistant preserve manager. You get relocated at company expense when this happens. I'd look very hard at 40-year and 50-year mortgages because I know that in three or four years, when I make preserve manager and have to relocate again, buying a better home at the outset will pay off in the long run. (Also, if you can't sell your old home within six months, they buy it.)