40 year Mortgage?

NEW -> Contingent Buyer Assistance Program
25w100k+_IHB

25w100k+_IHB

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Have any of you guys heard of it, and is it a good idea? I like a house that will (hopefully) fall out of escrow (I know, not a great chance, but someone else jumped right away) so I decided to call my bank (octfcu) and get pre-approved for a loan. They tried selling me on a 'first time buyer' program that has a teaser rate for 3 years, then a fixed rate for the next 37(!?!?) years.



I don't know what the rates are yet as they'll call me tomorrow with them. Is it just me, or is this a bizzare type of loan (and from an extremely conservative lender no less)?
 
My bank too! I would be curious to hear what rate they quote.



They do it because their members (teachers) don't have much, particularly the first years of their careers.



But if they give you a tease, that then adjusts to a fixed, so long as you lock down the fixed rate now and it is competative, why not? the tease is just free money then. I would bet that there is some period where you are locked out from refi, though, to make up for the teaser.
 
Let's look at an example:



$300,000 financed

6% fixed



for 27 years, total interest paid = $306,512 (assuming no prepayments), monthly P&I;= $1872

for 37 years, total interest paid = $447,655 (same assumption), monthly P&I;= $1684



The 40 year will cost you $141,143 more for a savings of $188/month. What is this value's 10-year time value to you? How long do you plan on paying a mortgage?



Here's the neat <a href="http://www.jeacle.ie/mortgage/">mortgage calculator</a> I use.
 
I imagine the rate, during the fixed period that is, will be higher (just like the rate for a 30 year is higher than the rate for a 15 year) and the interest paid over the life of the loan will be brutal. I see the person above me already pointed it out.



However, I am guessing some people will be suckered into it because all they think is payment payment PAYMENT
 
The 40 year is a horrible idea. It is just another way to convince individuals that they can afford more than they really can. Furthermore, you end up paying about a .5-.75% premium for the 40 year loan.... IMO.
 
I have friends who worked in the new product development at Countrywide and they were telling me about 50 year loans 2 years ago! These seem like terrible ideas but then again, long period loans are more common in other parts of the world.
 
good lord indeed. 25w100k, without getting to personal, are you married? kids? any particular reason at your age you need to make a 40 yr commitment to ANYTHING? (except your spouse)
 
Why not introduce the infinite fixed-rate mortgage with no amortization? Since people who take out interest-only loans do not mind renting from the bank, why not fix the interest rate and payment permanently? People would have to pay a higher interest rate because they are shifting interest rate risk onto a lender, but if people like renting from the bank in order to gamble on appreciation, I suspect the product would be popular.
 
Historically, how did people finance their homes back in the old days? Did they have 30 year mortgages back then to finance people into their new homes? Was there a time when the 15 year loan was the standard (or even shorter term loans) for homes? Just how did we get here is what I'm asking...
 
i was at a time share presentation the other day (for the freebies, of course)... point based system where the number of pts you needed in order to cover 2 wks of accomodations per yr came out to about $36,000. the minimum points you could buy to join in cost roughly $15,000. of course they started throwing out all sorts of payment plans. the first offer $6000 down and $400/mo for 15 yrs. that's about 14% interest! i said that's outrageous, i don't spend nearly that much PER MONTH on vacations. what can you pay? $100? perfect, here's a plan that's only $99/mo! of course they don't tell you the rates or # or yrs behind the math but its not hard to figure out you're getting ripped off.



UNFORTUNATELY... during the 90 minutes i was there, i witnessed several families take the plunge off the debt deep end. business was NOT hurting for these guys at all. and keep in mind this was a low-end vacation club company. throw together a slick presentation with beautiful resorts (many of which i noticed were NOT their properties, but starwood and other brand name properties),cater to the keeping-up-with-the-jones mentality, and people will agree to almost anything. its no different than how "luxury, prestigious" tract homes are marketed.



it was a reminder to me that we're going to see things get much worse before they get better. maybe ppl are cutting back on their $5 lattes but still making retarded financial decisions far worse than buying a home.



we focus so much on what the fed, wall street, govt, and corporate america is doing but forget its john q taxpayer that drives the bus. and john q taxpayer is drunk.
 
Speaking of timeshares...



I helped a VP for Trendwest get a home here in Irvine last year; a very good man they pulled out of retirement from NorCal. In our conversations while previewing homes, I was able to find out that they average a success rate of about 1 in 6 that go to the 90-minute presentations. That's incredible to me. For a terrible investment that you have to decide THAT DAY about. There's a reason they are giving away the $300 shopping spree at Nordstrom. And there's a reason they can afford it.
 
[quote author="acpme" date=1209595087]good lord indeed. 25w100k, without getting to personal, are you married? kids? any particular reason at your age you need to make a 40 yr commitment to ANYTHING? (except your spouse)</blockquote>


I don't "need" to make a 40 year commitment. I'm single and don't have any kids. I've been thinking about living on my own (instead of with roomates) for a little while now, and this place would be significantly cheaper then an equivelant apartment unit (with tax benefits). I could also pretty much break even without any tax trickery if I decided to rent it out either. Which is probably why someone else threw in an offer before I did.



My credit union used to have a "first time buyers" program that would wave PMI (which is stupid, they're so stingy that you can't afford shit without paying 20%), and wave closing costs.



Their 'new' first time buyer's program is the one I mentioned above. I'll let you guys know when I hear what the rates are.
 
[quote author="IrvineRealtor" date=1209605885]Speaking of timeshares...



I helped a VP for Trendwest get a home here in Irvine last year; a very good man they pulled out of retirement from NorCal. In our conversations while previewing homes, I was able to find out that they average a success rate of about 1 in 6 that go to the 90-minute presentations. That's incredible to me. For a terrible investment that you have to decide THAT DAY about. There's a reason they are giving away the $300 shopping spree at Nordstrom. And there's a reason they can afford it.</blockquote>


I was very happy to take my gift card (last year) from some sort of Marriott venture ... although I got mine for South Coast Plaza. I asked them to keep me on the mailing list for future buying opportunities.
 
[quote author="25w100k+" date=1209607346]I'm single and don't have any kids. I've been thinking about living on my own (instead of with roomates) for a little while now, and this place would be significantly cheaper then an equivelant apartment unit (with tax benefits). I could also pretty much break even without any tax trickery if I decided to rent it out either.</blockquote>


theres a lot of value in flexibility though. also, how many of us are in the same place, same job we were in at age 25? so if you end up not living there in the future and you're underwater, you'll still be locked into the responsibility as a homeowner. renting property at break-even merely defrays the cost of the mortgage but doesn't eliminate all the other responsiblities.



i find that most ppl greatly underestimate the difficulty of managing property. you are still paying a mortgage every month, taxes, mello roos, hoa, and maintenance. if its a way to make a <em>significant </em>positive cash flow, thats one thing. but for "pretty much break even"? try finding a property mgr that works for free.



acpmette's family has a condo in LA which she used to live in, but took a job in OC which meant finding a renter. managing emails and phone calls while at work, spending our weekends or evenings driving up there to show the place, doing due diligence and background checks on renters (and these days now you have the add'l burden of proving to potential tenants that you as landlord are solvent). we found a great tenant but their lease is up this yr and they are moving out of town for work. needless to say, i am NOT looking fwd to going through the whole process again but that's the life of a landlord.



just worth considering before taking the plunge.
 
[quote author="IrvineRenter" date=1209595472]Why not introduce the infinite fixed-rate mortgage with no amortization? Since people who take out interest-only loans do not mind renting from the bank, why not fix the interest rate and payment permanently? People would have to pay a higher interest rate because they are shifting interest rate risk onto a lender, but if people like renting from the bank in order to gamble on appreciation, I suspect the product would be popular.</blockquote>




If I recall correctly, this is kindof what people did from ~1880 to 1930. The poor people who couldn't pay cash, that is, got 5 year IO with a balloon, and refi'd every 5 years. Everyone else paid cash.



This turned out to be one of the problems at the last depression, and one of the reforms of Roosevelt's first administration was to make 30 year fixed, amortized mortgage the standard.



<blockquote>Key federal initiatives emerged from the collapse, including the Federal National Mortgage Associa?tion (FNMA, now Fannie Mae); the Federal Home Loan Bank Board to serve as a kind of Federal Reserve for the savings and loans and the mutual savings banks; the FHA; the FDIC; and the FSLIC to insure deposits at savings and loans. Importantly, the FHA and FNMA pioneered the use of the long-term, fixed-rate, level-payment, fully amortized mortgage, replacing the then-common five-year balloon mortgage, thereby providing mortgage lenders and investors with a more stable cash flow.</blockquote>
 
I see a lot of comments about living in the same place for 40 years. I don't understand how that should even be a concern when most of us value the 30 year fixed mortgage product. How come 30 is ok but 40 isnt? I don't know anyone who can gaurantee they will be in the same house even 10 years from now! Sure they would like to say that this is their permanent house but with the job market changing constantly, who knowes where one will be 10 years from now.



Personally, my goal is to get a 30 year product for the safety but pay it off in 10-15 years. I could take on a 15 year loan and have a lower interest rate but would be forced to higher payments regardless of my financial situation. I guess I see long term loans as just a safety net and the extra interest as an insurance payment.
 
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