Trump proposes 50-Year Mortgage

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C-Money said:
So really people would just be renting their home forever and never own it.
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No, no, no.

If you stay in a home for 10 years on a 30 year mortgage, the vast, vast majority of your equity comes from price appreciation, not principal pay down.

The key to wealth generation from home ownership is getting to leverage price appreciation in a very large asset with a very small down payment (while being protected from downside risk due to anti-deficiency laws and tax-favored interest payments).

The renter analogy is not apt. If you rent a house for 10 years, you do not get to capture any of the price appreciation in the market.
 
NCK9 said:
The lenders would also have some risk regarding the location of the property. For example if the first home is in Charlotte or Raleigh and the borrower moves to the suburbs of Las Vegas or a condo in South Florida then there may be a different risk profile with the property.
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Presumably, the regulations would require there be a significant delta between price and debt in the substituted security (e.g. 70% LTV) to protect the lender from such risk. You could also exempt certain highly volatile markets from the transfer.
 
gtyellowjacket said:
I'm not so sure there would be a premium, at least after the product has been on the market for a while and folks get a better idea of the risk. If you look at it as correctly pricing the risk of the mortgage, you have a person continuing to pay a mortgage that they've been paying for a few years versus that same person taking on a new and often times more expensive mortgage. My investment thesis would be that the person continuing the same mortgage payment would be a better risk than the person taking on a new mortgage payment.
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It's not just repayment risk, there is also term risk. That's why a 10-year US Treasury note trades at a higher rate than a 5-year UST even though the repayment risk profile is identical.
 
Enigma94 said:
It's not just repayment risk, there is also term risk. That's why a 10-year US Treasury note trades at a higher rate than a 5-year UST even though the repayment risk profile is identical.
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You're right about 30 vs 50 yr loan. But your post, and my response, was discussing the portable mortgage idea.
 
gtyellowjacket said:
You're right about 30 vs 50 yr loan. But your post, and my response, was discussing the portable mortgage idea.
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My point was that the market will price in the fact that a portable mortgage will have a longer shelf life than a traditional mortgage. Regular mortgages tend to pay off on average around 7 years, but portable mortgages will by nature be outstanding for longer periods.
 
Portable mortgages are a one-way rachet down on the coupon, so my guess is that there will need to be a bigger spread between mortgage rates and US treasury interest rates.
 
Calheel said:
No, no, no.

If you stay in a home for 10 years on a 30 year mortgage, the vast, vast majority of your equity comes from price appreciation, not principal pay down.

The key to wealth generation from home ownership is getting to leverage price appreciation in a very large asset with a very small down payment (while being protected from downside risk due to anti-deficiency laws and tax-favored interest payments).

The renter analogy is not apt. If you rent a house for 10 years, you do not get to capture any of the price appreciation in the market.
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How long have you lived in California?
 
nycfan said:
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Don't you hate it when illegal immigrants can afford to buy houses and most American citizens cannot? Those aren't bags of fentanyl the illegals are carrying! No sir, it's bags of ca$h that they're using to buy up all the affordable housing so our American young'uns cannot afford a mortgage!

Excuse Me What GIF
 
nycfan said:
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I guess these guys just assume their own voters are dumb enough to believe everything they say, or they realize their voters are just looking for talking points to regurgitate, no matter how ridiculous it makes them sound.
 
Can’t afford a house? It’s the illegal immigrants fault.

Can’t find a decent paying job? It’s the illegal immigrants fault.

Grocery price is too high? It’s still illegal immigrants.

Vance had the nerve to stand in front of Europeans and tell them that immigrants are killing their societies when he is married to a Hindu.
 
This thread reminds me of something I heard on POTUS Politics on SiriusXM the other day.

They were discussing the 50 year mortgage and how you'll be paying almost entirely interest for the first couple of decades of the loan. The host (don't remember who it was but an otherwise smart person) asked why are banks allowed to make you pay so much in interest early on and if congress has thought of doing something about it.

I was floored by the ignorance of the comment. The guest just kind of brushed the question off but I wish she would have said, "It works that way because of math. It isn't some kind of conspiracy against borrowers." It literally can't work any other way or it would be easy to game the system.

I know not everyone has competent at math just like I am not competent at doing what they do. But, my goodness.
 
ChapelHillSooner said:
This thread reminds me of something I heard on POTUS Politics on SiriusXM the other day.

They were discussing the 50 year mortgage and how you'll be paying almost entirely interest for the first couple of decades of the loan. The host (don't remember who it was but an otherwise smart person) asked why are banks allowed to make you pay so much in interest early on and if congress has thought of doing something about it.

I was floored by the ignorance of the comment. The guest just kind of brushed the question off but I wish she would have said, "It works that way because of math. It isn't some kind of conspiracy against borrowers." It literally can't work any other way or it would be easy to game the system.

I know not everyone has competent at math just like I am not competent at doing what they do. But, my goodness.
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Can you briefly describe that? That's not a challenge, I'm just wondering. I could see the interest rate going up just based on the risk if the standard was more like a car loan, but I have no idea why we settled on the current system and what the trade-offs are. Also, how would one game the system?
 
gtyellowjacket said:
Can you briefly describe that? That's not a challenge, I'm just wondering. I could see the interest rate going up just based on the risk if the standard was more like a car loan, but I have no idea why we settled on the current system and what the trade-offs are. Also, how would one game the system?
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Are you asking how amortization works?

Did you really go to Georgia Tech?
 
Calheel said:
Are you asking how amortization works?

Did you really go to Georgia Tech?
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I know how amortization works. I'm wondering why it is the default to front load interest for mortgages vs a loan where interest is equally distributed between monthly payments.

I would guess that this bank friendly policy ultimately leads to lower interest rates, but I really don't know.
 
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