Lenders have begun offering half-century home loans as incentive to buyers in face of record-high home prices, rising interest rates;
http://money.cnn.com/2006/05/10/news/economy/economy_mortgage/index.htm
Da Wiz
It’s a pretty much worthless product…I’m waiting for the 100 year mortgage.
I’m waiting for the 10-, 15- and even 30-year AUTO loan. :-\
All it’ll do is fuel further house appreciation. People don’t care about the price of their home. They care about the monthly payment. However right or wrong that approach is, it’s the one that’s most common.
They actually have 80 and 100 year mortages in China
Yes, that’s because of home prices in China…
…just another way for buyers to get more house than they can afford/need/deserve.
Keith
I got this response from a friend: Bankers aren’t dumb! They already get 90 to 98% interest on their 30 year amortized loans!
When you use a 30 year amortized loan at 7.5% the 7.5% really only applies if you go the full 30 years. Statistics tell us the average loan only stays on the books for 5-7 years. Early in the loan the amount that is applied to principal is very small. It is only in the later years that a significant amount is applied to principal. On average after paying for 20 years on a 30 year loan the original principal still owed is about 70-75%. So, in the first few years if you take the amount paid to interest and the amount paid to principal your loan is costing about 90-98%. If you change loans or refinance your loan (statistic say you will) then the bank got that high rate not the 7.5% rate you thought you had. Banks love you to do 30 year amortized loans. THEY WILL LOVE THE 50 YEARS ONES TOO! (If you’re that dumb!)
Da Wiz
Does anyone remember that mortgages are still fairly new? This was the general consensus when they were first introduced.
“if you can’t buy a house with cash then you don’t deserve it”
I wouldn’t say who deserves what. To each his own. We all know that the market is open to new products and with the rates going up we’re probably going to see several new products coming out. The IO still beats a 50 yr mortgage anyway, This product will most likely not do to well.
I know First Franklin rolled out a 50 due in 30 last month… (subprime lender) it is as close to interest only as interest only… Wall Street and the feds have been warning of the dangers of I/O and option ARM for almost a year now this is just another way around it…
Living in CA the problem I see with ARM and I/O is that people buy to the max they can afford at the introductory rate. They put on the blinders about the risk that their rate may go up in the future.
Then they seem shocked that rates have gone up and their payments are going up. It’ll be interesting to see how many people suddenly can’t afford their home. I think this year will be sort of bad but next year will be really grim.
The whole mentality is that who cares if you can’t afford the payments in 3 years. You just sell and cash out your equity. Right now the equity increase is flat. There won’t be anything to cash out for some of these people and they won’t be able to afford the payments.
Money magazine devoted most of their print this month (June) to the impeding trouble with buying Real Estate. They mostly focused on what you just mentioned, marcus. It could get ugly - at least for those unwary buyers. I just hope it doesn’t get so ugly that our government starts poking their nose in it and ruin it for investors (even further).
<<It could get ugly - at least for those unwary buyers.>>
I wouldn’t call them “unwary buyers”. That would allude to the fact that they didn’t know what they were doing. Most of them are:
- Spoiled rotten from day one
- “I want what I want and I want it right now” folks
- Keeping up with the Joneses
- Maxxed out on everything that they have
- Completely aware of the consequences of their spending
- Used to having unrealistic appreciation bailing thier sorry behinds out of the crack
These are largely the same folks from “Property Ladder” that take a project, turn it into a “Sh-- sandwich”, and then get bailed out because when their 3-month project actually took them 14 months, the appreciation bailed them out.
Not for much longer, I’m thinking…
My two cents.
Keith
I actually don’t think a 50 year is a bad idea. I am opposed to IO loans. If its a fixed long term (10 or more years) rate I think it could be a benefit to a client. Although you are paying off very little principal its better than nothing.
While people may say people are using loan products and other things to buy above thier means. I dont think many are from NJ. Here in my middle class town a 3 bedroom 1600 foot ranch on a 50 x 100 ft lot goes for about $400,000. Housing is expensive. a million bucks gets you maybe 3500 sq ft on a 100 x 100 lot. So with real estate so expensive people have to be creative to just find something they can purchase. the days of affordiable houseing prices in good neighborhoods are gone.
I definatly agree in there being trouble in the resl estate market soon. but that can also lead to people buying because there are good deals to be had. I wouldnt blame the buyers so much as those giving them the loan or selling them the property. They tell the client just what they want to hear. They tell them a 5/1 IO arm will get them the payment they can afford. they dont tell them that in 4 yrs the rates can be through the roof and values will be down which can make them owe more than the house is worth adn wont be able to refinance. this is why i would rathr put someone in a 40 or even if i could a 50 yr loan. If its fixed long term they will be able to afford it down the road.
I also dont buy into the doom of what people are writing about. There will always be a need for people to buy a home. Rates go up prices come down. There will be people who get into some trouble. but i think many of the people who are in ARMs will be able to get out and finance thier homes. There are loans that do 107% financing and if thier property loses value they can get some of that value back in the financing.
I think real estate became so expensive because of non-traditional loans. It made it so more people could afford the monthly payments so house prices were bid up. Let’s face it. The averge person only cares about their monthly payment. If everyone had to get a 30-year fixed then there’d be a lot less buyers for homes than there are now.