A 50-year Mortgage!
By: Spencer Rascoff, CFO & VP of Marketing | April 25, 2006
According to the Wall Street Journal, the days of the 50-year mortgage are almost upon us: "The 50-year home mortgage doesn’t exist yet, though the idea is being seriously batted around among lenders as home price increases continue to far outpace income gains, making monthly payments on more traditional loans less affordable." [WSJ, 4/22/06; requires subscription]
On the one hand, I’m happy that banks have come up with ever more innovative ways to finance the increased indebtedness and live-beyond-your-means mentality that is the American Way. But it should be noted: when you have a 50-year mortgage, really all you’re doing is renting your house from the bank, but paying a premium for the call option on buying the house later. Plus getting a tax deduction from your mortgage interest. In other words, you’re not really buying your house, you’re just renting it from the bank. Ah, the American Dream!
- Stumble it!
- Categories: Home Mortgage, Zillow
Comments
11 Comments so far
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Tom Adams on April 25, 2006 3:19 pm
At 6% interest, about 34% of the total you pay on a 15-year mortgage goes to interest.
On a 30-year mortgage this jumps to 54% (i.e., over half of what you pay is for the loan, less than half is for the house).
On a 50-year mortage, the interest alone would be 68% of the cost (less than a third for the house, more than two-thirds for the loan).
Redfin on April 26, 2006 7:53 am
“Show Me a Stock I Can Buy 90% on Margin”
An apocalyptic May 2006 Harper’s cover story, “The New Road to Serfdom,” predicts that the past year’s housing boom has created crushing debt (no link, because Harper’s isn’t online but click here for a fantastic take-down of the outgoing editor,…
Anonymous on April 26, 2006 9:40 am
Instead of addressing the issue at hand, which is the fact that buying a house at current price levels is simply not an option to many people making the averge wage in a given area, we find more ways to treat the symptoms instead of curing the disease. Inventing new borrowing tools to perpetuate unsustainable practices and prices levels will eventually backfire. The best way to reduce the inevitable effects of loose lending standards and the massive amounts of fradulent loans that were originated the past few years is to tighten credit availability. But lenders, realtors, and homebuilders lobby the hell out of whoever they can to keep this from happening,as this will reduce the available buyers = higher inventory (already at record levels)= lower prices = less profit/commission. So they invent new tools to keep the bubble going for as long as possible, regardless of it’s impact on consumers
Hmmmm…if, as they claim, these risky, neg. am, I/O ARM loans are truly only going to people who qualify with full doc reviews and an understanding of what future payments may be, why are they so worried?
You should have to work hard and save your money to buy a home, as one once had to do, and not be able to borrow more than it’s worth with no money down when you buy it without proving how much you make and pay only the interest for two years…if prices don’t appreciate at 10% a year (and they won’t anymore!), it’s easy to end up underwater, and what keeps you from walking away when you have zero equity in your “home”? Nothing, and these lenders need to start paying the piper for giving risky loans to anyone who can fog a mirror.
BETTY KING on April 26, 2006 1:15 pm
Will you be including commercial properties at some future time?
Luke Gunderson on April 26, 2006 2:54 pm
If found this on digg.com
http://tinyurl.com/gsgxm
This is Bill Gate”s house on Zillow.
It said that 99% of homes in the 98004 ZIP code have a value lower than this home.
WOW!!!
kthor on April 26, 2006 11:56 pm
Well Back to Business!
this is the only way plenty of California homeowners will/can buy a property.
how about a 60 yr loan?
banks would love this
http://www.alameda-california-realestate.com
kthor on April 26, 2006 11:59 pm
in Regards to Bill Gates Home Value….well it’s custom built with a lot more upgrade you’ll or 98% of the people could/would ever see in anyone’s lifetime..
just wonder how appraisal would see this when he tries to sell..lol
http://www.bay-area-cash.com
Rich on April 28, 2006 2:18 pm
“…but paying a premium for the call option on buying the house later”
hunh? you business school guys need to explain this one
Anonymous on April 29, 2006 7:46 pm
Hmmmm… so if I am hearing this right, it’s bad if someone can own a home if the amount paid in interest is high. OK, so if that is true, why not let the person who wants the loan decide if the interest is too high? I don’t have a loan like this, but I don’t quite see the problem if someone is able to live in a better home, is willing to pay the payment, and move out, finally, from an apartment or rented room. The difference of course is that the room truly is rented, while the home will appreciate. Yes, yes, I know, home prices are going to go down soon… And gas prices, and milk, and everything else, too. New Orleans aside, who really believes this?
Frendy Excellent, Real Estate Broker (Florida), MBA, M.Tax (Magna Cum Laude), MCSD, MCSE+I on May 4, 2006 10:20 am
“… but paying a premium for the call option on buying the house later”
Not quite. It dependds on the state that you live in. In Florida, for example, you own the title to your home, not just the option to acquire the title at a later date.
Nevertheless, the rent analogy is correct: in a truly economic sense, paying interest is equivalent to paying “rent” on the money that you have borrowed (since you must return the money that you have “leased” from the bank at a later date).
Nikki on May 17, 2006 4:44 pm
Really, Zillow, you think an 8BR house has only 1 BA? LOL…