Monday, March 27, 2006

"50-Year Mortgages are hot"

This is just what I want, to be paying on the house until I'm 78.


Judy said...

That's like taking out a 10 year payment plan on a car - WHY???

Jonathan said...

I worked this out and on a 50-year loan, same interest rate, our payment would only decrease 17%, so the monthly relief really isn't that much. On the other hand, over the extra 20 years it works out to $200,000 more in interest! Hardly seems worth it.

For comparison I tried to figure out what a $700,000 mortgage on a million dollar house would cost, to see if this is enough of a monthly decrease over a 30-year note to make it worthwhile:

House: $1 million
Down: $300,000
5.75% interest

Loan: $700,000
30 year term: 4085/month, or $1,470,000

50 year term: 3556/month, or $2,133,600

Moral: If you can swing 3556 I bet you can handle 4085, and it will save you $600,000! The 50 year mortgage just seems like a really bad idea, even in really hot markets. Anyone in the market for something really expensive care to comment?

Anonymous said...

I'm not sure why you would even imagine putting down a $300,000 down on a $1 million loan.

In the San Francisco Bay Area (Silicon Valley), the vast majority of borrowers put down 5% - if anything at all!

It's called the 5/15/80 - you put down 5, borrow 15, borrow 80.

How else would you afford a 800 sqft home? Editor

Lauren said...

Don't you at least have to put 20% down to avoid paying PMI? If you can afford a $200,000 down! Why not $300,000!?

Anonymous said...

Right... that's why you put down 5% and borrow 15% from another source. So you have 20%. Then you get the interest only mortgage to finance the remaining 80%.

When interest rates rise, and you can't afford the interest anymore - or when the principle is due, you simply sell the place for twice what you paid for.

Lauren said...

Um...Yeah, you'd better HOPE you sell the place for twice of what you paid for it! Sure that would be great but come on, you can't count on that. I heard from my friend this weekend that SF market is slowly going down.

I'm torn because I'm sure the 5/15/80 works for some people and that's great. On the other hand...I hate the idea of "living above one's means". Buy what you can afford. We put 20% and it wasn't easy and we rented for a while and Jon saved for a LONG time. If we were still in SF, we would I'm sure be sick of losing money if we were still renting. We wanted equity in a home/condo/TIC from the get go. I think, although we would have just adored living in two bedroom in Noe or something, we'd have to live farther out or tried a TIC or just...waited...

Eh, to each their own. I guess it's a complicated and risky business...finding a home in the bay. At least in our market, here in metro Detroit, it's not too bad. It's higher than average, but not terrible. This cute house around the block is asking $200K for 750 sq. feet. I don't know... It gets way worse a few blocks closer to down town.

Judy said...

We did an 80/20 - 100% financing - no PMI. It is like automatically taking out all of the equity in your house in a second mortgage before you even take the first box through the front door.

Yeah. After two years, we own about 5 tiles in the entryway. Yea.