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And financing cars for 7 years is exceptionally stupid and leading to soaring rates of default on car notes.
Trump proposes 50-Year Mortgage
- Thread starter nycfan
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We should probably set the bar lower and just ask for an intelligent idea, if we don't want to be disappointed.
This is why I don't believe @Ramrouser is serious when he claims that trump is getting things done. He really isn't.
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They do it to get people into higher priced cars.
But there really isn't a comparison of a $500K loan for 50 years and a $80K loan for 7 years.
My two current cars, I had 72 month financing. The rates were so low, the interest wasn't an issue, I just wanted to low minimum payment in case I had a different need some months.
My wife's car was financed for 72 months and paid off in 36. My car was financed for 72 months and currently on track to pay off in 48, or less.
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I am very confused by the new MTG — seems like evidence of actual body snatching or cloning or something very Sc Fi going on.
This is ... MTG? What planet is this?
There are often many better uses of cash than paying principal (at least the way our system is currently set up).
1. Using cash to pay principal ties up your cash in an illiquid asset. Yes, you could theoretically access that cash through a cash-out refinancing (or worse, home equity loans), but in general, every dollar paid to principal is a dollar that is unavailable to you for other, potentially more important, purposes. If those same dollars were put in the stock market, you could immediately liquidate them and have access to them when needed.
2. Paying principal yields no economic return, other than reduced interest expense on the loan (which is already subsidized by the federal government, depending upon your tax situation). It is very easy to pencil out a greater long term yield by investing cash in the stock market than in principal.
3. The primary reason for a shorter mortgage is forced savings. People are so bad at managing their money that paying higher monthly principal payments forces them to save what they would otherwise blow on Taylor Swift concert tickets or offroad vehicles. Keep in mind that with a 50 year mortgage someone could always pay extra principal each month and effectively make it a 30 year mortgage (albeit at slightly higher interest rates). The 50 year mortgage gives the flexibility to make lower payments if conditions warrant.
In short, there are lots of reasons why it may make sense to take out a 50 year mortgage, and not just when buying the first house.
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Oh I know why they do it and know it can be used effectively and with great success by those who are knowledgeable. Unfortunately those are NOT the folks who would be mostly using 50 year notes.
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I think this is what this mortgage should be used for: to get first time owners a start in the housing industry NOT to get some 48 yr old finance bro into a 2M mansion.
Oddball
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‘Sold POTUS a bill of goods’: WH furious with Pulte over 50-year mortgage
The White House was blindsided by the idea and is now dealing with a furious backlash from conservative allies, business leaders and lawmakers.
Even the Trumpies are not happy with this...
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‘Sold POTUS a bill of goods’: WH furious with Pulte over 50-year mortgage
The White House was blindsided by the idea and is now dealing with a furious backlash from conservative allies, business leaders and lawmakers.www.yahoo.com
Even the Trumpies are not happy with this...
"On Saturday evening, Pulte arrived at President Donald Trump’s Palm Beach Golf Club with a roughly 3-by-5 posterboard in hand. A graphic of former President Franklin Roosevelt appeared below “30-year mortgage” and one of Trump below “50-year mortgage.” The headline was “Great American Presidents.”"
That's all you have to do is flatter Trump and you'll probably get something in return.
gtyellowjacket
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That's likely what they're planning although not too many banks would take on a 30-year mortgage either at this point. Almost everyone sells to Fanny or Freddy.
And I don't think that's an underwriting issue or an inability to price the risk for 30 years or 50 years or whatever. It's just because fannie and freddy provide a better way to access the capital cheaper. The capital markets would rather buy up a bunch of mortgages packaged together in a bond vs investing that same Capital directly into the banks that would hold a mortgage. Eventually, that filters down to the person taking out the mortgage in the form of lower rates.
That's likely going to be the same for 50 year mortgages. They're likely will be a market for bonds backed by US housing 50 year mortgages. Whether it's a good deal for homeowners will depend on how much demand there is for those bonds. If there's a lot of demand, the loan rates will go down and if there is not much demand, loan rates will be much higher.
It is worth noting that the monthly payment is not that different between a 30 and 50, although maybe the difference is enough to make it easier for some people to qualify for loans, and thereby help to prop up the housing market (which presumably is Puilte's objective here).
A $500,000 loan at 6% for 30 years has monthly payment of $2,997.75
A $500,000 loan at 6% for 50 years has monthly payment of $2,632.02
(In contrast, the same loan at 15 years is $4,219.28. And a pure interest only loan would be $2,500 a month).
A $500,000 loan at 6% for 30 years has monthly payment of $2,997.75
A $500,000 loan at 6% for 50 years has monthly payment of $2,632.02
(In contrast, the same loan at 15 years is $4,219.28. And a pure interest only loan would be $2,500 a month).
Another way to look at it is similar to what people have done with 7 year car loans - use the leverage to buy something more expensive at the same monthly payment.
6% rate and payment of ~2100/month for 30 years gets you $350k.
if you do it for 50 years you get just under 400k.... which for a starter home might mean bigger/nicer/better location.
As the loan value increases this diminishes but might make a difference for a starter home purchaser.
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I don't think the idea of a 50-year mortgage is entirely insane or anything. I do think that anyone who thinks it will somehow be a magic bullet to help solve housing issues in the country is insane, though. It will be like spitting into a waterfall.
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When my wife retired after 40 years at the same company, all of those years with a company car with unlimited personal miles, she had some new car sticker shock. She absolutely refused to just buy the car, claiming she could get a better deal if she financed it. I rolled my eyes. So I asked the car salesman how quickly I could pay off the loan and not effect his commission. He replied, "Just make more than four payments." I made five. Silliest exercise in "jump through the hoops" I have ever subjected myself to.
It could be a useful tool for a specific borrower, but amortization is one of the mechanisms to reduce systemic risk across mortgage portfolios. If there is widespread adoption of 50 year or interest only mortgages it ratchets up the leverage across the system. We saw this during the GFC, when interest only and even pick-a-pay mortgages became en vogue and those portfolios were the worst performers.
tarheelbillie
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Twice the interest or more...that's the scam! And many, maybe most, would not live long enough to ever actually own the home. Imagine the total interest in times of big inflation. In 1983 rates were as high as 15%...run that one thru an amortization calculator. A FUCKING SCAM... not surprising considering the source. Not to worry... Congress has our back.
