In many cases, people getting 40 year mortgages would be better off just continuing to rent. We just bought our first home with 10% down and a 30 year note and we’re now basically paying rent to the bank.
You can get a 40 year mortgage at many banks now. I doubt 40 year mortgages will ever catch on. The banks generally charge a higher interest rate for the longer term so the payments aren't much cheaper than a 30 year loan.
But your mortgage might go down over the course of 30 years. Mine is near 41% less than it was when I got it, because I was able to refinance. The rent for my house would be 4-5x what I'm paying in a mortgage.
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!
Because 30 years is typically the longest term you can get. True there are "40 year" mortgages but generally they are a worse deal than a 30 year and targeted to people who are bad at math.
The author's point is that a 50-year mortgage is a bad deal because almost nobody has a 50-year working lifetime to pay for it, and besides the interest over that time span is absurd.
But let's think instead of who a 50-year mortgage is bad for: someone who can't quite currently afford a house. Who is a 50-year mortgage good for (bearing in mind this is a UK thing): anyone in the business of lending.
It's a done deal that these will become a commonly done way to buy a house.
I’d love to lock in 30 years at a low rate, would free up lots of money for investment, but since that’s not an option I have to opt for clearing the mortgage in ~6 years, and living like I work at McDonalds until that day arrives.
Probably better for my long term financial health and peace of mind, but the opportunity cost sucks.
it's probably a bad idea for most people, but not for the reason you gave. one way of looking at very long term mortgages is that they are a bet on how long you will actually own the property. keep in mind that, historically, the value of a nominal dollar has halved every ~20 years. if that trend continues, the monthly payment by the end of the mortgage period will be less than a quarter of the initial real value. whether you're a "loser" for paying all that extra interest depends on what happens to the value of the house, what you did with the extra $80/month, etc. it's not inconceivable that a person/family who holds the property for a full 50 years would be better off than if they had structured it as a 30 or 15 year mortgage.
the bigger risk is what happens if you don't end up holding onto the property for a full 50 years. it will take a longer time to start building equity vs a 30 year mortgage, and the upfront interest payments are already (imo) a significant problem with 30 year mortgages. it's hard to know for sure you will live in a place long enough to break even on these types of mortgages.
Maybe subsidizing 30 year mortgages with low down payments is not such a great idea for the general populous. Imagine if house payments were similar but you paid off your mortgage in 10-15 years instead of 30. That would be a much better state of affairs.
30 year mortgage is simply too long for me. I don't have that kind of stability. Mortgage term limit should be 10 years or maybe 15 with 20% down, that would solve a lot of problems. Before you say that I can choose to pay it off in 10 years - I can't. Too many dinks in my area are maxing out on their 30 year mortgages and inflating the cost of housing all around - I wouldn't be able to afford payments on 10 year term loan.
I love the 30 year mortgage. I buy a home I couldn't afford in cash or with a substantially shorter term note, live in the house 2-4 years then sell it for a profit with no prepayment penalty. I've done that 4 times in a row each time being able to buy a house that's perfect for my family's needs at the moment.
The real problems, in my opinion, are (1) people go all-in for their "forever home" only to discover most people don't stay that long, and (2) people view themselves as owners rather than future sellers. Understand your house is a leveraged investment and you'll do well.
Most people don't do the math and realize that over a long enough time horizon a 30 year fixed mortgage will cost you less than purchasing the home outright. This assumes you take the money you would have sunk into the home and instead invest it at a higher rate of return, which is an option available to most home owners.
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