Because It's The American Way To Burden Yourself With Debt For A Half-Century

[filkertom]

Yet another reason I'm so glad I'm out of the mortgage industry: There are some motherfuckers out there offering fifty-year mortgages.

Adjustable-rate fifty-year mortgages.

You'd better love that house to death. No, really. To death.

Comments

[awfulhorrid.livejournal.com]

Or possibly you better make sure your children will love the house!

In less than a month I will be 36. One of my sweeties and I have been discussing getting a house within 5 years ... so call it when I'm 40. 50 year mortgage? Even with the advances in medical science, there's a damn good chance I would be dead long before that was paid off! (Although I suppose one could argue that my potential life insurance might be able to cover the outstanding mortgage when I died.)

To death indeed.

[smallship1.livejournal.com]

And how many times over do you pay the price of the house?

No shock.

[suburbfabulous.livejournal.com]

This is part of why my impending foreclosure is not such a bad thing.
You see, I don't like financing anything. The first refinancing I ever did was to pay off my car loan, in fact. (If a bank has claim to it, I don't actually OWN it anyway...and the bank never drove the damned thing. I ALWAYS had to drive.)
Yes, I know that I cannot afford to buy a house outright...but, that said, I'd rather rent for the rest of my life than spend another minute beholden to the pernicious babyrapers of the mortgage world. I've sold mortgages; I'm proud to say I was terrible at it.
They want your money, and they will say whatever it takes to get it.

In Japan ...

[the-magician.livejournal.com]

they do 100 and 200 year mortgages.

Here in the UK they do *interest-only* mortgages (which means in 10 years, 20 years, 50 years or 1000 years, you've still paid off ZERO of the mortgage!)

In fact I have an *interest only" mortgage (and so does my brother). In my case I'm also paying for an investment vehicle (an endowment) which is supposed to make enough money in 25 years to pay off the capital (but won't).

The whole plan is that you live in the house for a while, then you sell it and move somewhere else (and hopefully your first house has gone up enough in value that you end up with a bucket of cash each time you do that) and eventually you either have enough money to pay off the capital, or you die and the house is sold to pay off the mortgage with any profit going to your kids etc.

For example, my house was 100k. At the end of 25 years my endowment is currently scheduled to deliver around 70k (and I'm about 12 years into that endowment) ... but the house itself is now worth 225k. Let's assume (for sake of argument) that house prices stick where they are and don't increase over the next 13 years. At the end of 25 years I've been paying interest only :-( and I owe 100k. But between the value of the house and the endowment I have nearly 300k. I can pay off the mortgage and still have 200k cash.

50 year mortgages are much more suitable for people who are not planning to live there for 50 years than those who are!

Re: In Japan ...

[solarbird]

Here in the UK they do *interest-only* mortgages (which means in 10 years, 20 years, 50 years or 1000 years, you've still paid off ZERO of the mortgage!)
Pikers. There are negative amortisation mortgages in the US now - in other words, if you pay only the minimum due, the longer you have it, the more you owe. Lovely, eh?

Re: In Japan ...

[filkertom.livejournal.com]

We had loans come through where I'd dimly recognize the name of the borrower. I'd go back and look, and, sure enough, they'd got the loan a year and a half or a year or six months ago, and now were refinancing to get a better rate or a more stable product. (The shortest I remember seeing was five weeks between the original purchase and a refi.)

Part of the reason I came to hate my job was it was the job of my clients, i.e., loan officers, to sell people products that virtually guaranteed more (and more difficult to relieve) debt. And my clients were miserable as well, because their bosses were makin' 'em sell the stuff. Bottom line profit uber alles. The entire lending system is so out of whack, and so weighted towards the lending institutions, that I fear it'll never be fixed.

[lizard-sf.livejournal.com]

Like anyone actually pays off a 30 year mortgage in 30 years...

I spent 6+ years of my life writing programs to analyze mortgage prepayment and default trends (and it's every bit as thrilling as it sounds, trust me). Most mortgages last 3-5 years, no matter what the term -- granted, that's a consequence of current low interest rates. As rates climb, you might see fewer refis. In addition, rising house values cause people to sell and move a lot more than they otherwise would.

So I'm not so sure a 50 year mortgage is a bad thing. The payments will be low (I'm guessing), so it's good for first time home buyers. Once they get some savings and can start paying it down faster than the minimum rate, it might work out well for them. Of course, if they only make the minimum payments and the housing bubble collapses or interest rates skyrocket, they're royally screwed...

[filkertom.livejournal.com]

Well, see, that's the problem. Both of those last scenarios are fairly likely now. There's also the fact that, for the first twenty years or so, they're paying very little or nothing into actual equity -- almost all of it goes to the interest on the balance.

[aylinn.livejournal.com]

The balance to this sort of thing is what's known as an equity accelerator or "bi-saver" type payment arrangement.

half your mortgage payment gets deducted every two weeks - usually after you've gotten paid. you make an extra payment every year which goes straight to principal. It's simple & works quite nicely.

I want to get back onto my bank's plan but haven't quite stabilized enough yet financially. We'd paid down our mortgage about 7k in 5 years. Had to rework it after the accident though because we'd messed up so bad BEFORE the accident due to unemployment.

But I still have my house.

[phaedress.livejournal.com]

I say ban usury altogether and create a more humane way to share in resources.

[wouldyoueva.livejournal.com]

Isn't there still a deduction for mortgage interest? I don't think they actually expect folks to pay off after 50 years.

We're getting to the point where everyone's renting, the only difference is how quickly you can turn the property around, and whether you can put holes in the walls.

So I bought a condo, once upon a time

[capplor.livejournal.com]

At the then-good interest rate of 13%, on a 30 year loan. Being mathematical, and curious, I actually looked at the finance statement at the end of the year. Of the $350 monthly payment, do you know how much was NOT interest? About $7. That means, if I'd only paid $84 extra the first year (and for rather a few years afterwards), I'd have cut a year off the term of the loan, saving about $4100 ultimately. When I was able to refinance about 10 years ago, BTW, virtually nothing was paid off, and market, though up, was not so much, so I had to pay money in to do it.

I really can't get as excited/upset as you, Tom, over doing the same math over 50 years. It's all a legal fiction about "paying it off".

[admnaismith.livejournal.com]

Oh, the Republicans have tried twice to eliminate the mortgage interest deduction. Because, you know, they say they're the party of lower taxes so it must be true.

[admnaismith.livejournal.com]

Good God, but those mortgage people are slimy.

I've got a 5.75% fixed rate mortgate with less than $100K still owed on it, and I pay a little extra toward principal every chance I get. The lengths the criminals will go to to get me to look at their offers to trade that for ballooning debt are staggering.

Just to get me to open the envelope, they write Notice of Rate Reduction on the envelope and use the prominent return address of the bank that actually holds my mortgage, when they are not that bank. They also send sales pitches in brown window envelopes with what looks like a check showing through the window. Just as a matter of decency, I take the trouble to return their postage paid envelopes filled with as much junk paper as I can cram in.

The letters on the inside contain language more appropriate for a Weekly World News full page ad ad for the Magic Voodoo Wealth Crystal than for a loan proposal. The very idea that they think I'm in the demographic that would respond to such snake oil pitches makes me want to scrub myself.

And, thanks to today's Government, these rip-off scams are perfectly legal.

Have you noticed (if your area is like mine) that there are now more INSTANT CASH!!! Payday loan centers on street corners than there are espresso stands? Don't even get me started...

Re: No shock.

[marahsk.livejournal.com]

How is it better to give your money to some pernicious landlord?

[rook543.livejournal.com]

I red that some places in Japan they offer 100 year mortgages. In Japan though it's not unusual for a house to stay in a family for several generations...

Re: No shock.

[suburbfabulous.livejournal.com]

Truthfully? Miles better. At least then I'd KNOW whose crack habit I'm feeding.
It's all about people...>8)X

[tigertoy.livejournal.com]

I can't get worked up over the concept of a 50 year mortgage; it's better than an interest-only mortgage. A savvy borrower would treat it as a 15-year mortgage (by making the appropriate extra principal payment) with an option to make a lower payment if he fell on tough economic times. The generally predatory nature of the money-lending industry these days is much more of a problem. It's scary to see how much the middlemen in the industry, who make their money on the commissions for arranging loans, are screwing the gullible at both ends of the transaction. We've already discussed here about how they're taking advantage of the borrower, but really, *lending* money for multiple decades at today's fixed rates (or even at the cap most adjustable loans are allowed to rise to) is a real sucker bet. If we only see 10% inflation and 15% interest rates when the wheels fall off this economy (and they're pretty darn loose right now), we'll be getting off easy.

[the-s-guy.livejournal.com]

Meh... the only problem I can see is people who treat it as if they are going to spend the entire 50 years without moving OR refinancing.

Just because it says '50 years' on the cover doesn't mean it's set in stone. It's merely one option.

[beki.livejournal.com]

I have 7 more years to go on mine from when I refinanced. I also pay a bit extra every month so that I can get the thing paid off that much sooner. YMMV. I also dont own a credit card. There are a lot of things that I dont have because of it, but my finances are a lot better for it.

[the-s-guy.livejournal.com]

There is in some places. My locality, for example. The advantage of which is that if your annual interest repayment exceeds your tax paid, you can write to the Tax people and say "I will be claiming all my tax back for the foreseeable future", and they will write a statement saying you don't need to pay tax, which you can give to at least some employers to avoid having tax taken out up front.

So - you don't get taxed out of your pay packet, you get to have the money well in advance of annual tax refund day. The smart thing to do at this point is to use this advance money to pay off your principal as fast as you can (assuming you were paying the interest from your normal after-tax income).

Put all together, this means that while you might be paying the same amount in dollars per year (assuming your tax refund was going towards the principal), your debt starts winding down a lot faster.

[the-s-guy.livejournal.com]

I take the trouble to return their postage paid envelopes filled with as much junk paper as I can cram in.

Thin slabs of lead? :)

[denali1.livejournal.com]

Hell, in my line of work (Federal Student Aid), we have 25-30 year loans.

However, I have seen people take out a 10-year loan in 1966, suspend repayment on it until 1971, default on it and be hounded on it by a collection agency until 1995, consolidate it at a 9% interest rate, suspend repayment on it for another five years, make interest only payments on it for another three and then reconsolidate into another 25-year loan.

THen they have the brass nut to complain too much interest has accrued (simple interest loan, no floor and or ceiling limitations).

Tom, can I shoot them? Please?