Federal Housing Administration greenlights 40-year mortgages(wptv.com)
wptv.com
Federal Housing Administration greenlights 40-year mortgages
https://www.wptv.com/money/real-estate-news/federal-housing-administration-greenlights-40-year-mortgages
45 comments
You're right about not getting much equity (unless the market keeps going up!) The videos says, "Hardly anybody stays in a house 30-40 years anymore. In fact, the average is 7 years before sell and move on." After 7 years you would pay about the same in interest, but close to 50% less towards the principle.
You can still build considerable equity even if you are moving every few years, even if prices and interest rates are steady.
For example lets say you buy a house for $250k and pay $50k down, taking a 30 year 6% mortgage. Your monthly payment would be $1199.10.
Then you move in 5 years, selling the house for $250k and buying a new house for $250k. At that time you still owe $186k on your mortgage and have paid $59k interest. You are left with $64k net after paying off the mortgage, and use that as a down payment on the new house. You take out a $186k 30 year mortgage at 6%.
Your monthly payment on the new mortgage is $1115.81. But instead of paying that, continue to pay $1199.10, the payment on your original $200k mortgage. That extra ~$75/month goes toward principle.
Move again in 5 years, again selling for $250k and buying for $250k. You owe $167k, so net $83k which goes to the down payment on the new house. So this time you take out a $167k 30 year 6% loan. The payment would be $1001.25, but keep paying $1199.10.
Say you keep moving every 5 years and keep selling for $250k and buying for $250k, putting the net after each sale into the down payment for the next house, taking a 30 year 6% loan, and making monthly payments of $1199.10.
30 years after you bought the first house as you come to the end of 5 years in house #6 you will have just paid off mortgage #6 and so you end up in a fully paid off home 30 years after you started just like you would have had you stayed in the original house for 30 years. You've also paid the same total in principle and interest that you would have if you had stayed put.
For example lets say you buy a house for $250k and pay $50k down, taking a 30 year 6% mortgage. Your monthly payment would be $1199.10.
Then you move in 5 years, selling the house for $250k and buying a new house for $250k. At that time you still owe $186k on your mortgage and have paid $59k interest. You are left with $64k net after paying off the mortgage, and use that as a down payment on the new house. You take out a $186k 30 year mortgage at 6%.
Your monthly payment on the new mortgage is $1115.81. But instead of paying that, continue to pay $1199.10, the payment on your original $200k mortgage. That extra ~$75/month goes toward principle.
Move again in 5 years, again selling for $250k and buying for $250k. You owe $167k, so net $83k which goes to the down payment on the new house. So this time you take out a $167k 30 year 6% loan. The payment would be $1001.25, but keep paying $1199.10.
Say you keep moving every 5 years and keep selling for $250k and buying for $250k, putting the net after each sale into the down payment for the next house, taking a 30 year 6% loan, and making monthly payments of $1199.10.
30 years after you bought the first house as you come to the end of 5 years in house #6 you will have just paid off mortgage #6 and so you end up in a fully paid off home 30 years after you started just like you would have had you stayed in the original house for 30 years. You've also paid the same total in principle and interest that you would have if you had stayed put.
Yes, it’s possible to build equity this way, but man there are much better ways. All that assumes it costs nothing to move which is ridiculous; especially if you’re the seller.
In Canada, the seller always pays the realtor fees for both buyer and seller, and both parties will pay for independent property inspections by qualified professionals. Preparing a home for sale usually incurs at least some small reno work to make it more attractive vs other properties on the market. Moving expenses and lawyer fees, while not outrageous also are a factor.
Technically there are commission-free ways to conduct home sales, but those still have associated costs (lawyer fees don’t go away) and lack protections buyers want so are avoided by the majority of buyers. This means the home sells for many thousands less than otherwise, negating the savings. 3x the work for at best the same payout.
With everything factored in, selling and moving will often cost over 10k (certainly over 5k) for the seller. So buying a home once and staying in it for 30 years would net savings of 30-60k vs moving every 5 years for same time period. Putting that much extra money on your principle interest-free (possible once a year with most mortgages here), or say using that money for a second property to rent out, would build equity MUCH faster.
In Canada, the seller always pays the realtor fees for both buyer and seller, and both parties will pay for independent property inspections by qualified professionals. Preparing a home for sale usually incurs at least some small reno work to make it more attractive vs other properties on the market. Moving expenses and lawyer fees, while not outrageous also are a factor.
Technically there are commission-free ways to conduct home sales, but those still have associated costs (lawyer fees don’t go away) and lack protections buyers want so are avoided by the majority of buyers. This means the home sells for many thousands less than otherwise, negating the savings. 3x the work for at best the same payout.
With everything factored in, selling and moving will often cost over 10k (certainly over 5k) for the seller. So buying a home once and staying in it for 30 years would net savings of 30-60k vs moving every 5 years for same time period. Putting that much extra money on your principle interest-free (possible once a year with most mortgages here), or say using that money for a second property to rent out, would build equity MUCH faster.
> both parties will pay for independent property inspections by qualified professionals
So strange this isn’t regulated by the state - have a single independent report as a prerequisite to even start a listing.
So strange this isn’t regulated by the state - have a single independent report as a prerequisite to even start a listing.
With markets rising, inflation, and pay not matching, what you get for that 250k is less and less each 5 year jump.
I wonder. Given that the market is sooooo sure that house prices only go up, how much is insurance for that? What does a guarantee that I can sell my house in 10 years for the current price cost? Or how about a guarantee that the mortgage is fully paid off if the house is sold, even if the sale price is below the remaining principle?
If that were, say, another $100 per month, while guaranteeing no loss in equity for me, that could be worth it.
If that were, say, another $100 per month, while guaranteeing no loss in equity for me, that could be worth it.
A government landlord isnt telling you not to put nails in walls or preventing you installing aircon though
Granted this is a bit oversimplified...
Do you think that's a fair trade-off? Pay a lot of money every year to keep something you bought, under threat of eviction and/or jail, just so you can hammer some nails into the wall?
I'm all for paying for my share of external benefits derived from taxes, but is it fair to people who get priced out of their own homes due to gentrification or being bullied into it by the masses? (Strangers that they don't agree with voting for taxes.) I suppose I'm more interested in consumption taxes than taxes for just existing.
Do you think that's a fair trade-off? Pay a lot of money every year to keep something you bought, under threat of eviction and/or jail, just so you can hammer some nails into the wall?
I'm all for paying for my share of external benefits derived from taxes, but is it fair to people who get priced out of their own homes due to gentrification or being bullied into it by the masses? (Strangers that they don't agree with voting for taxes.) I suppose I'm more interested in consumption taxes than taxes for just existing.
What I really don’t agree with regarding the payment structures is why mortgage companies are allowed to frontload the interest payments. Currently for the first 5 years of a 30 year mortgage, you’re only paying the interest with no payment going towards the principal.
I don’t think I’ve ever seen a mortgage that’s interest-only for a fixed time like that (but I’m not sure - I’m in the US). If you want fixed payments for 30 years the only way that works is if you pay less principal at the start. There’s more outstanding debt with the same interest rate, so the interest is larger.
They exist. I have a 10/1 io, at which point it becomes a 20 year amortization with a floating rate. The bet was that inflation would eat the principal down and I probably wouldn't be in the house more than 10-12 years anyway
That's really interesting - so your payments are only fixed for 10 years (and at a lower amount, since it's interest-only)? I suppose you're betting that either:
- You'll sell the house before 10 years
- Rates will go down and you can refinance
I'm in a more standard 10/1 ARM for similar reasons - the interest rate was lower and I felt it was a reasonable bet that we'd be able to refinance for a better rate (or worst case slightly worse rate) in the next 10 years.
- You'll sell the house before 10 years
- Rates will go down and you can refinance
I'm in a more standard 10/1 ARM for similar reasons - the interest rate was lower and I felt it was a reasonable bet that we'd be able to refinance for a better rate (or worst case slightly worse rate) in the next 10 years.
Nope. I wanted maximum interest rate duration and I'm betting that inflation will be higher than my mortgage interest rate, so it will eat more of the outstanding balance. Adjusted for inflation, my balance will be less than half what it is now. I don't anticipate staying more than about 15 years, and the capped rate is low enough that in the worst case this is still reasonable, and I'll have greater optionality to refi if I have a bigger balance
They arent “doing it”, that’s just how debt is amortized over a set period if you want fixed payments. Otherwise payments would be really large in the beginning and decrease over time as the remaining debt get smaller and smaller.
If you want to pay more principle, either increase your down payment or get a shorter amortization period.
If you want to pay more principle, either increase your down payment or get a shorter amortization period.
> Currently for the first 5 years of a 30 year mortgage, you’re only paying the interest with no payment going towards the principal.
Interest-only mortgages do exist, but that's highly atypical.
On a normal (in the US) 30 year fixed mortgage you are never paying only interest.
> What I really don’t agree with regarding the payment structures is why mortgage companies are allowed to frontload the interest payments.
They are not! It might seem that way but it's simply the monthly interest on the amount owed. Obviously on month #1 you owe the most money, so you pay the most interest. Every subsequent month you owe a little bit less (since you paid off a bit of the principal last month) thus the same percentage of interest is now less.
Interest-only mortgages do exist, but that's highly atypical.
On a normal (in the US) 30 year fixed mortgage you are never paying only interest.
> What I really don’t agree with regarding the payment structures is why mortgage companies are allowed to frontload the interest payments.
They are not! It might seem that way but it's simply the monthly interest on the amount owed. Obviously on month #1 you owe the most money, so you pay the most interest. Every subsequent month you owe a little bit less (since you paid off a bit of the principal last month) thus the same percentage of interest is now less.
Because you're borrowing less money as you repay the principal. Like, if you take a loan at 6% with monthly payments, that means each month you owe 0.5% of the current outstanding principal in interest. (6% / 12 months)
Probably your question should be closer to "why is it so normal for loan terms to be stretched so long"
Probably your question should be closer to "why is it so normal for loan terms to be stretched so long"
I think that article is incorrect. The FHA is allowing modification of existing mortgages to 40 year terms to prevent default. Not new 40 year mortgages: https://nationalmortgageprofessional.com/news/fha-oks-modify...
Surely in many cities this will simply lead to people being able to afford even larger loans to bid on the limited stock of housing, driving the prices even higher. If you have an inelastic good you need to actually increase supply, boosting demand will just make everything worse.
Yup. The ponzi continues.
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When I was young I thought the point of a mortgage was to pay it off. A 30 year mortgage made sense to me. It covered the child rearing years, and the prime wage earning years resulting in a paid off home come retirement and empty nesting at the end of that 30 yrs.
A 40 yr mortgage, taken on in your late 20s/early 30s doesn’t get paid off until you’re 70s.
Is the point of a mortgage merely to lock in your cost of housing (but not your property tax in many states) for 40 yrs? And eventually 50? Or 60? Bc screw each up and coming generation, we’re not fixing the problem just can kicking so the game is lock in your costs as soon as possible it’s only going up!
A 40 yr mortgage, taken on in your late 20s/early 30s doesn’t get paid off until you’re 70s.
Is the point of a mortgage merely to lock in your cost of housing (but not your property tax in many states) for 40 yrs? And eventually 50? Or 60? Bc screw each up and coming generation, we’re not fixing the problem just can kicking so the game is lock in your costs as soon as possible it’s only going up!
The word itself suggest as much as well. "Mortgage" is derived from Old French mort ("dead") + gage ("pledge"). In other words, it was a pledge that was supposed to die either when it was paid off, or when the borrower defaulted.
> And it seemeth, that the cause why it is called mortgage is, for that it is doubtful whether the feoffor will pay at the day limited such sum or not: and if he doth not pay, then the land which is put in pledge upon condition for the payment of the money, is taken from him for ever, and so dead to him upon condition, &c. And if he doth pay the money, then the pledge is dead as to the tenant, &c. [Coke upon Littleton, 1664]
https://www.etymonline.com/word/mortgage
> And it seemeth, that the cause why it is called mortgage is, for that it is doubtful whether the feoffor will pay at the day limited such sum or not: and if he doth not pay, then the land which is put in pledge upon condition for the payment of the money, is taken from him for ever, and so dead to him upon condition, &c. And if he doth pay the money, then the pledge is dead as to the tenant, &c. [Coke upon Littleton, 1664]
https://www.etymonline.com/word/mortgage
If you combine a mortgage with term life insurance matching the remaining principal to be repaid, you can synthetically create that scenario. It’s pretty classic financial advice for a young high single earner starting a family.
I always thought it was interesting that the English word for a home loan is mortgage (meaning death pledge) but the French use another word, hypotheque. I wonder why the French don't use the same word. Maybe the transparency hits too close to home?
Yes, the point of a mortgage in the US is mostly to locking in a monthly payment in a manner that allows for homes to be sold at a much higher price than their previous sale. It's about increasing wealth, and it's not necessarily about paying off the note before it's resold.
And hopefully when you sell your amortized housing cost is as close to zero as possible which is a benefit compared to renting.
The point of a mortgage is to be able to live in a house before you can afford to pay for all of it.
There's no reason why you have to pay off a mortgage. You can sell the house and recoup your partial equity in the property.
e.g., you can start with a 30 year mortgage, sell it at 10 years for an equivalent property with a 20 year mortgage, do it again in 10 years for a 10 year mortgage, and end up fully owning a house even if it's not the one you started with. Or renting for the remainder of your life with your accumulated equity and savings.
There's no reason why you have to pay off a mortgage. You can sell the house and recoup your partial equity in the property.
e.g., you can start with a 30 year mortgage, sell it at 10 years for an equivalent property with a 20 year mortgage, do it again in 10 years for a 10 year mortgage, and end up fully owning a house even if it's not the one you started with. Or renting for the remainder of your life with your accumulated equity and savings.
Really really bad idea, of he market will correct as houses become unaffordable and new construction is built. This is just kicking the can down the road and propping up existing home values.
>propping up existing home values
That's why you'll hear champagne bottles being popped. Anytime home values increase in the west it's hailed as a sign that the economy is "doing great" and it's done by the banks and our governments through the simple stroke of a pen. We've exhausted the endless cheap money printer, now it's time to increase the duration of the serfdom. It's the easiest form of wealth transfer.
I can't remember if it was a Brit or an Aussie here saying it but it went something like: "our economy now is basically a few rich old farts buying and selling million dollar homes from one another and calling it economic growth".
Now queue more headlines of: "Why aren't young people having kids anymore? Is it because they can't afford homes? No, of course not, it's because they're spoiled and entitled and spend too much on lattes, iPhones, watching porn, playing x-box and screwing around on tinder, instead of working shit jobs to pay 40 year loans for shoebox homes."
That's why you'll hear champagne bottles being popped. Anytime home values increase in the west it's hailed as a sign that the economy is "doing great" and it's done by the banks and our governments through the simple stroke of a pen. We've exhausted the endless cheap money printer, now it's time to increase the duration of the serfdom. It's the easiest form of wealth transfer.
I can't remember if it was a Brit or an Aussie here saying it but it went something like: "our economy now is basically a few rich old farts buying and selling million dollar homes from one another and calling it economic growth".
Now queue more headlines of: "Why aren't young people having kids anymore? Is it because they can't afford homes? No, of course not, it's because they're spoiled and entitled and spend too much on lattes, iPhones, watching porn, playing x-box and screwing around on tinder, instead of working shit jobs to pay 40 year loans for shoebox homes."
> 'If it helps people get into a house, it's a good thing,' Sonsire Gonzalez, a real estate agent in Port St Lucie, says.
So along with the government, real estate agents don't understand how this "hack" will only make more housing less accessible?
So along with the government, real estate agents don't understand how this "hack" will only make more housing less accessible?
Realtors only care about deal flow, not the systemic issues of this.
To your point, higher prices mean higher commissions.
A joke going around the finmeme world lately:
What's the difference between a stripper and a realtor?
75bps.
What's the difference between a stripper and a realtor?
75bps.
This does nothing for affordability, it makes it worse! If people can bid on houses but can lower their monthly payments by extending the loan period, it means they can bid a higher price -- collectively this makes prices go UP!
The only answer to housing affordability it increased supply.
The only answer to housing affordability it increased supply.
Really really bad for long term affordability.
Giving two shits about home affordability went out the window ~30 years ago, give or take. It's been about enriching the banks and real estate owners ever since.
Oh brave new world.
To be fair it's not that unreasonable given the interest rates. But it's still ultra indicative of the new indetriude that defines reality today.
To be fair it's not that unreasonable given the interest rates. But it's still ultra indicative of the new indetriude that defines reality today.
You will own nothing and you will like it
Finally - something to pass on to the children!
Maybe 6 years ago there was a rumor that you could get a 50 year mortgage in California. I thought surely that is satire. I guess it was not.
House of cards.
I bet you Canada is next!
Whoop-de-do. A whole $100.
> experts said it can make a difference, especially since many homeowners hardly stay in one house for 30 or 40 years.
> it's great because it saves them from wasting money on rent,"
> The extra 10 years also added more interest, close to $170,000 more
Yeah, they're saving money on rent alright. Although I would argue at that point, a mortgage is just like rent since they won't be making any dent in the equity in the first several years or so before they might move again, except that it's a locked-in amount and can't be raised every year by the landlord... although taxes can be raised, and so you don't really own the land, in which case the government is your landlord at that point.