50 Year Mortgages?

[CafeMonkey]

Now come on guys... You aren't being very helpful! Your analogies just aren't working...

50yr products are totally worthless (unless you are subprime-some value there).

I could say the same about 30 years... or 15... Heck, if you're not going to support that with something, we could just say "Anyone that doesn't pay cash for their house should be on welfare".

Would anyone take a 50-year Credit Card Loan?

Again, bad anaolgy! Would you take a 30 year Credit Card?

Can you guys support your thoughts with some reasoning?

[starke]

Freded02... I'm a believer that Mortgage Debt at these rates is good debt. In fact, even if mortgage rates were 11%, and you can earn a market return of 10% on your money... you will end out ahead keeping your mortgage. (interest rates are market driven, bonds and indexes in general will be affected. Good corporate paper is about the same price as mortgage interest rates).

At current rates (using 6.5%), factoring in a 25% tax deduction for interest, your actual lending cost is closer to 5% (first few years). Some FDIC insured savings accounts right now are paying 5%... tax free muni bonds are probably not that far behind either...

Paying off your home or making a double payment... is a statement that the individual can not get a higher return on their money then the real cost. (understand that some people find it easier, but they are decreasing their liquidity, and more than likely setting themselves back).

Leverage, and how you are leveraged, can be a very powerful tool in wealth creation. Again, this all depends on the client and their goals and strategies...

[starke]

CafeMonkey,
Here's what I mean about the 50yr mortgage... for the prime lending world, there is P+I payments, I only payments, and less than I payments. Let's stick with the first 2.

For 200,000 here's the avg PI and interest rates for 30, 40, 50 & I only loans:
30 yr: 6%: 1199.10
40 yr: 6.125% 1,117.90
50 yr: 6.125% 1,071.33
100yr: 6.125% 1,023.11 - just for kicks a 100yr mortgage
I only: 6.125% 1,020.83

There is typically a financing hit for the increase in the loan term that represents itself as either points or percentage. The cost is about the same for the 40, 50 and I only products.

As lenders we have to qualify people based upon their payments and DTI. The I only is less, and they can make extra payments at any time, without the obligation of the extra 50 dollars.

In the sub-prime market though, clients often don't get the option of an interest only payment. Because they are already facing higher interest rates, and we are often squeezing to get them approved (or get them a better interest rate based on a lower DTI). Here a 50yr Am period can make the difference of getting someone qualified for the loan or not.

This is why for most of us the 50yr Am, IMO, is window dressing. No length of an amoritization period mortgage will have a lower payment than the interest only product, and often at the same cost.

[LendingClarity]

To me, the 40 and 50 years loans are very gimmicky. I think all the 50's are subprime, so the rates aren't even close to what you're showing Starke. As the term lengthens, the rate increases, so the payment reduction is minimal, while the annual interest and long-term interest costs rise. Very few people are going to keep these long term, but even as short term solutions to qualify people for more home, they fail to do the job. I've written some posts on this under Creating Affordable Payments category at www.lendingclarity.com. check it out. Thanks