40 year Mortgage?

NEW -> Contingent Buyer Assistance Program
because tacking on more yrs is merely another way of allowing borrowers to substitute fiscal discipline for lower pymts. its no diff than interest only or other exotic terms designed to lower pymts relative to the 30 yr fixed.



"interest only" and "option arm" are naughty words now, so the way to get ppl to over-extend themselves is 40 and 50 yrs terms.
 
I just sold my house in redondo beach last week. I cant tell you how nice it was to get out of that pile of debt. Now I dont have to worry about anything related to the house. Ive been renting in irvine since last november, now with the house unloaded, i feel like i have this new found freedom. Now if i wanted to i could move to san diego or anywhere else that i want, i really like irvine, so im not going anywhere but i could if wanted to.



I agree that having the flexibility to do whatever or move wherever you want as a renter feels pretty good. Homeownership, let me rephrase that, renting from the bank, is definitely over rated.
 
I wouldn't get loans with teaser rates, those tend to be quite suicidal.



IMO where land is plenty and cheap, use 10 or 20 year loans. When it's developed into suburban neighborhoods, 15 or 30 year fixed rate. When you have true urbanization, the land owner should seek to lease and not sell the land. For an example, the land owner leases the land to a property developer with 50 year term. The developer builds a condo mid-rise on top, and sells the units. The buyer gets a 50-year, transferable lease at fixed rate, and the monthly payment doesn't go up over time. At the end of the 50-year lease, the occupants must vacate and the land owner is required to demolish the old building and rebuild according to updated codes and regulations. A socially responsible contract could be enacted where the land owner is required to pay 30% of the value of the land at conclusion of the lease to its recent occupants. Thus, the initial buyer into the 50-year lease is actually entering a profit-share relationship with the land owner, and the occupants departing at end of the 50-year lease will depart with a lump sum cash payment to assist them in relocation.



I wish we had more choices, like foreign currency mortgage.
 
[quote author="lendingmaestro" date=1209635323]I'm only going to say this once. If you take out a 40 year mortgage, you are retarded.</blockquote>


And I am guessing there were people who said the same thing about 30 year loans when 10-15 years was the common product. Actually, I dont know the history of loans but I am guessing that 30 wasnt some magical number that has been around forever. It has somehow become the traditional safe product but that doesnt mean that 20 or 40 could replace it.
 
Before the Great Depression, short-term interest-only mortgages with very high equity requirements (50% down) were the norm. Basically, lenders borrowed short and lent short and passed interest rate risk on to their customers. When the Great Depression resulted in large numbers of foreclosures, a more stable lending system became necessary. The 30-year conventionally amortized loan became popular because the payment was not much higher than interest-only, it matched the term of ownership with the term of the loan, and it created a stable payment for borrowers resulting in fewer foreclosures. Lenders relaxed equity requirements (20% down) because they were getting paid back as the loan amortized which reduced their risk. Modern "innovations" which further reduced or eliminated equity requirements and the profusion of interest-only loans created a high-risk lending environment resulting in the huge losses we are seeing now. A 40-year term on a mortgage loan reduces the payment a very small amount, and very few people ever own a home for a full 40 years. It tends to have higher interest rates because there is so little additional equity being built up to provide the lender with a buffer, and the additional interest rate risk lenders face with these longer fixed-rate periods requires a larger premium. I don't think it very likely that the 40 year term will become the norm.
 
IR - thanks for sharing the history. I didn't realize the 30 year loan has been around since the great depression.



My point isnt that the 40 year is a good product or anything like that but that very few people will ever own the same house for the full 30 years. Yet 30 is still the safe product today. I agree that any "innovation" in financial products is usually nonsense but I do imagine that another loan product could become more meaningful and relavent moving forward.
 
its not an exact science but roughly around 30 is a nice sweet spot. any longer than that doesnt make sense if you're not going to stay in the home for 40 yrs -- you're just paying extra interest and not getting a significantly lower pymt than 30 yrs. and if you are going to live in that home that long, you'd still be paying mortgage into your retirement if youre the avg aged first home buyer.
 
[quote author="IrvineRenter" date=1209678989]...A 40-year term on a mortgage loan reduces the payment a very small amount, and very few people ever own a home for a full 40 years. It tends to have higher interest rates because there is so little additional equity being built up to provide the lender with a buffer, and the additional interest rate risk lenders face with these longer fixed-rate periods requires a larger premium. I don't think it very likely that the 40 year term will become the norm.</blockquote>


I think 40 year term has it benefits if there is no prepayment penalty and you could afford a 20 or 30 year term payment on a regular basis. The key is having the discipline to pay down the principal along with the regular mortage payments - which are mostly interest for a very long time.



Its all depends on how much the "risk premium" versus the actual interest rate over the course of the loan. For example, if over time, the interest rate of a 15 year loan is higher than the original 40 year loan, then it may make sense to just pay the minimum payment and use the extra cash to generate additional income or save that a down payment of the next refinance. Again, that requires discipline and 40 year loan is not good for general consumptions. The value of 40 year term is closely tied to your outlooks on inflation and trend of long term interest rate.



JMO
 
[quote author="bruins@oc" date=1209741696][quote author="IrvineRenter" date=1209678989]...A 40-year term on a mortgage loan reduces the payment a very small amount, and very few people ever own a home for a full 40 years. It tends to have higher interest rates because there is so little additional equity being built up to provide the lender with a buffer, and the additional interest rate risk lenders face with these longer fixed-rate periods requires a larger premium. I don't think it very likely that the 40 year term will become the norm.</blockquote>


I think 40 year term has it benefits if there is no prepayment penalty and you could afford a 20 or 30 year term payment on a regular basis. The key is having the discipline to pay down the principal along with the regular mortage payments - which are mostly interest for a very long time.



Its all depends on how much the "risk premium" versus the actual interest rate over the course of the loan. For example, if over time, the interest rate of a 15 year loan is higher than the original 40 year loan, then it may make sense to just pay the minimum payment and use the extra cash to generate additional income or save that a down payment of the next refinance. Again, that requires discipline and 40 year loan is not good for general consumptions. The value of 40 year term is closely tied to your outlooks on inflation and trend of long term interest rate.



JMO</blockquote>


All those things are true, and compared to a fixed-term interest-only loan, a 40-year conventionally amortized mortgage is an improvement because you have long-term interest rate stability. Unfortunately, very few people have the discipline to make anything more than the minimum payment. That is why the Option ARM failed so spectacularly and why interest-only is also going to see high default rates.
 
[quote author="bruins@oc" date=1209741696]

I think 40 year term has it benefits if there is no prepayment penalty and you could afford a 20 or 30 year term payment on a regular basis. The key is having the discipline to pay down the principal along with the regular mortage payments - which are mostly interest for a very long time.</blockquote>


the same could be said for a 50-yr term. i can just make extra principal pymts to mimic a 30-yr term and i get the option of making the lower pymt if i want. if i can find a lender that offers a 60-yr term, even better! what about 75-yrs? this is no different than interest-only loan arguments and we know how that turned out. same could be said for credit cards...
 
[quote author="acpme" date=1209761724][quote author="bruins@oc" date=1209741696]

I think 40 year term has it benefits if there is no prepayment penalty and you could afford a 20 or 30 year term payment on a regular basis. The key is having the discipline to pay down the principal along with the regular mortage payments - which are mostly interest for a very long time.</blockquote>


the same could be said for a 50-yr term. i can just make extra principal pymts to mimic a 30-yr term and i get the option of making the lower pymt if i want. if i can find a lender that offers a 60-yr term, even better! what about 75-yrs? this is no different than interest-only loan arguments and we know how that turned out. same could be said for credit cards...</blockquote>


I would love to see a 50 to 75-yrs fixed rate loan or fixed rate IO loan that doesn't reset 50 to 75 yrs with 5% down or less, and a risk premium of 0.3 - 0.5% for every additional 10 yr term.



Let's face it, you are renting from the bank. At these length you may "reset" before the loan does. But which landlord gives you:

- guarantee same or lower rental payment

- option to leave at any time: either by paying off the principal or by default

- give you a hedge against inflationary rent increases

- give you a hedge against deflationary / falling housing prices

- give you a long eviction process

- option to have government bail you out

and at the same time the status and illusion of home ownership.
 
uh... so you're saying, let's give people terms that encourage them to make as low a payment as possible. let them put a mere 5% down which means they have even less skin in the game when prices go down. they shouldn't worry about paying principal because price appreciation can bail them out. if not, they can just walk away in which case the govt bails them out. let's provide terms that give borrowers the most flexibility in how to screw the bank, the govt, and their neighbors... not to mention the american taxpayer.



in other words, lets repeat everything that just happened the last 7 yrs... because clearly things turned out so well the first go-around.
 
[quote author="acpme" date=1209773711]uh... so you're saying, let's give people terms that encourage them to make as low a payment as possible. let them put a mere 5% down which means they have even less skin in the game when prices go down. they shouldn't worry about paying principal because price appreciation can bail them out. if not, they can just walk away in which case the govt bails them out. let's provide terms that give borrowers the most flexibility in how to screw the bank, the govt, and their neighbors... not to mention the american taxpayer.



in other words, lets repeat everything that just happened the last 7 yrs... because clearly things turned out so well the first go-around.</blockquote>


Hey, it's a free market, and no one is forcing the lenders to offer such terms. If the lenders / investors are stupid enough to repeat the same mistakes and the government regulators didn't learn their lessons, then who are to blame? Fool me once, shame on you...
 
40 year mortgages have no advantages over the 30 year right now, due to large differences between the actual interest rates.



In addition, a 30/10 or 30/15 (30 year fixed with 10 or 15 year IO options) would be a much better choice for most people, and would carry a lower rate than the 40 year.
 
[quote author="Masterofdamoney" date=1209782415]40 year mortgages have no advantages over the 30 year right now, due to large differences between the actual interest rates.



In addition, a 30/10 or 30/15 (30 year fixed with 10 or 15 year IO options) would be a much better choice for most people, and would carry a lower rate than the 40 year.</blockquote>


Could you explain how these work. If the interest rate fixed over the life of the mortgage? What is the life of the mortgage? Is it a 10 year interest-only fixed followed by a 30 year conventionally amortized mortgage? Is it a 10 year fixed that adjusts to a 20 year fully amortized mortgage with a different interest rate? I would like to understand this loan program better.
 
The payment difference of a 30 year vs a 40 or 50 year is very small, not

worth considering.



Saying you are going to pay off a 30 year faster is nice, but I wonder how

many people do it.



Rule of thumb on a 30 year--you spend 25 years paying half of it and the

last 5 years paying the other half.



In fact, there's no reason not to do a 25 year; the payment is only a little more

and it amortizes a little faster.



On a very low interest rate--say 5 or 4 1/2, you pay half after maybe 24 years, and

the other half over 6 years. And a very high rate, half after say 26 years, the rest

in the last 4. Naturally your payment is high with the high rate!!



Only railroad mtges used to be 50 years!!



Also, after 40 years who knows where the dollar will be. As it stands now it looks like houses will

go down in value, for the next 2,3, 4 years, and everything else will inflate. But 30 or 40 years

is an awefully long time. I think that after the great drop, houses will resume a slow upward

march. Since people historically stay in a house 5-7 years, you are just

as tied up with a 30 year as a 40 year mtg.



The 30 year mtg has the consequence of allowing houses to inflate more than they would

have otherwise.



I represent a co-op. They are thin on the ground here. Lenders refuse to loan on them,

so you pay all cash, or you get seller financing. The result is they sell for 50-100,000 less

than equivalent condos. No financing, values drop, which is part of what we are seeing now, but which

has ALWAYS been the case.



The pain comes from the change. If there has never been much in the way of financing,

people have adapted. If their is financing, people have adapted. If you go from financing,

to none available, great pain. The other way makes people happy.



Also, Momopi, the developers only granting a 50 year term on the land here has been

tried. Mostly 99 or 100 years. As far as I can see, there was absolutely no effect on anything.

Also, the "owner" of the land is hard to even find after so much time. I betcha after the term

is over, if the owner tries to take control, the unit owners would cry foul and file lots of lawsuits.



Frankly, I can't say why, but I think the unit owners would win, or just buy out the

owner for a song, after wearing him down for a while. The buying out the owners thing has

happened a couple of times that I know of. People don't like those arrangements.
 
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