Federal Housing Administration greenlights 40-year mortgages

https://www.wptv.com/money/real-estate-news/federal-housing-administration-greenlights-40-year-mortgages

by belter • 3 years ago

36 44 3 years ago

Aransentin• 3 years ago

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.

Ancalagon2• 3 years ago

Yup. The ponzi continues.

chiefalchemist2• 3 years ago

'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?

toomuchtodo• 3 years ago

Realtors only care about deal flow, not the systemic issues of this.

chiefalchemist2• 3 years ago

To your point, higher prices mean higher commissions.

boppo1• 3 years ago

A joke going around the finmeme world lately:

What's the difference between a stripper and a realtor?

75bps.

Ancalagon2• 3 years ago

Really really bad for long term affordability.

ChuckNorris892• 3 years ago

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.

angmarsbane• 3 years ago

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!

eschulz• 3 years ago

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.

theGnuMe• 3 years ago

And hopefully when you sell your amortized housing cost is as close to zero as possible which is a benefit compared to renting.

actually_a_dog• 3 years ago

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

koolba• 3 years ago

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.

lowkey• 3 years ago

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?

chii• 3 years ago

Bc screw each up and coming generation

why isn't the child of said mortgagee living rent free in the parent's house while they save up (and invest their deposit elsewhere)?

Elyra• 3 years ago

Having supportive parents is a privilege I wish I had.

Ferret7446• 3 years ago

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.

dantheman• 3 years ago

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.

ChuckNorris892• 3 years ago

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."

rationalist2• 3 years ago

on a $312,000 loan at 6.85% interest, the monthly payments were $2,044 for 30 years and $1,904 for 40 years.

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.

photonbeam• 3 years ago

A government landlord isnt telling you not to put nails in walls or preventing you installing aircon though

rationalist2• 3 years ago

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.

pfranz• 3 years ago

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.

tzs• 3 years ago

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.

jutrewag• 3 years ago

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.

rzimmerman3• 3 years ago

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.

refurb• 3 years ago

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.

brigade• 3 years ago

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"

jjav• 3 years ago

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.

rzimmerman3• 3 years ago

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...

rektide• 3 years ago

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.

iamnotsure• 3 years ago

House of cards.

BigCryo• 3 years ago

You will own nothing and you will like it

morninglight• 3 years ago

Finally - something to pass on to the children!

moltar• 3 years ago

I bet you Canada is next!

Overtonwindow• 3 years ago

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.

Eddy_Viscosity2• 3 years ago

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.

Federal Housing Administration greenlights 40-year mortgages

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