Is there a 50-year mortgage in your future?
I was talking to a lender the other day who told me that a woman had come to him looking for a lower payment. He explained to her that if she didn't want an interest-only payment, she might want to consider a 50-year mortgage. Well, she just didn't believe it was possible, but it is...
In fact, the same lender is doing a 100% financed loan right now with the first for 50 years and the 2nd for 40 years. It's the only way that the buyers can afford a home and pay some principle (and not very much at that).
Now, these buyers are assuming a couple of things: 1) that values will go up in the long run 2) that they'll sell and buy another house or else refinance once the prepayment penalty runs out.
Are they crazy? Perhaps, but not crazier than the people who are taking on negative amortization. Should they just rent instead? Possibly, but then they don't at least have the tax benefit. And let's face it, rental properties can be beat up, and if you fix them up, you're just doing the owners a favor, and they can sell it out from under you at any time. Even while paying a mortgage might seem like rent, you still have the ability to make the place as nice as possible, enjoy it as your own, and sell it for more at the right time.
This doesn't mean that it's a great loan. It's just that for some people, it's the only loan that works unless they want to leave the area.
In fact, the same lender is doing a 100% financed loan right now with the first for 50 years and the 2nd for 40 years. It's the only way that the buyers can afford a home and pay some principle (and not very much at that).
Now, these buyers are assuming a couple of things: 1) that values will go up in the long run 2) that they'll sell and buy another house or else refinance once the prepayment penalty runs out.
Are they crazy? Perhaps, but not crazier than the people who are taking on negative amortization. Should they just rent instead? Possibly, but then they don't at least have the tax benefit. And let's face it, rental properties can be beat up, and if you fix them up, you're just doing the owners a favor, and they can sell it out from under you at any time. Even while paying a mortgage might seem like rent, you still have the ability to make the place as nice as possible, enjoy it as your own, and sell it for more at the right time.
This doesn't mean that it's a great loan. It's just that for some people, it's the only loan that works unless they want to leave the area.
posted by Alma Jill Dizon, Riverside Realtor @ 7:37 PM
2 Comments:
At 2:18 AM,
Anonymous said…
I am dreading working until my 70's!
At 11:11 AM,
Chris said…
The 50 year loan is a great loan for someone who doesn't qualify for interest only. That's what it is good for. Otherwise, go interest only. Sometimes I get the impression that clients feel that if they have an interest only loan that they can't make payments to principle, but they most definitly can. The problem with a 50 year loan is that after 5 years of living there the principle will have BARELY gone down. At least with an interest only loan you can take the difference you save every month and then send it all in one big check at the end of the year and specify that it go straight to paying down the principle. If you do that you'll have paid down more than if you would have had been paying a traditional principle and interset payment all those months.
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