Monday, June 05, 2006

Longer Term Mortgages A Bad Deal

From the AP via the Star Ledger:

Longer-term mortgages offer more pitfalls than benefits
By Eileen Powell

"When it comes to home mortgages, some people are thinking really long term by taking 40-year or 45-year -- or even 50-year -- loans."

"The attraction is lower monthly payments, which make these mort gages more manageable for some families. The disadvantage is that consumers can end up paying much more interest over the life of the loan than they would with a traditional 30-year mortgage."

"Some housing experts are skeptical the 40- to 50-year mortgages will be widely used."

"Keith Gumbinger, vice president of HSH Associates, a mortgage information service based in Pompton Plains, said 40-year mortgages have come in and out of favor, last gaining some popularity in the mid-1980s when interest rates were so high many consumers didn't qualify for loans."

"The major drawback of the longer-term mortgages, he believes, is that 'equity builds extremely slowly' so that there's little advantage compared with interest-only loans."

"For comparison purposes, Gumbinger calculated the cost of mortgages of various lengths with a fixed rate of interest: On a $275,000 mortgage for 30 years at a fixed rate of 6.75 percent, a consumer would make monthly payments of $1,783.64 and pay $367,112 in interest over the life of the loan. That same mortgage at the likely higher rate of 7 percent for a 40-year term would require monthly payments of $1,708.93 and result in $545,290 in interest. At 7.25 percent for 50 years, monthly payments would be $1,707.45 and total interest would be $749,476."

"All of these mortgages, he noted, appeal to many of today's buyers "because they look at monthly payment and cash flow as their only objective" when selecting a mortgage."

32 Comments:

Blogger Richie said...

Figures an article like this comes 6 months after people were saying 40-50 year mortgages are a good idea because they help affordability..

Some people just don't know how to do the math.

I just purchased a car for my wife. I had a couple options, 3 yr @ 2.9% (dealer special), or 5 yr @ 6.5%. Sure, the allure of having smaller payments over 5 years was nice, but in the end, the interest was FOUR times as much as it was with the 3 yr.

I opted for the 3 yr. Sure, payments are just about twice as much, but the interest paid over the life of the loan is practically nothing.. Not to mention, I sold my wifes old car, and put that $$ into a high interest savings account. Over the life of the loan, the interest we make in the savings account pays for the interest of the loan, and then some.

Rising interest rates are not bad for everyone.

-Richie

6/05/2006 06:23:00 AM  
Anonymous Anonymous said...

DO NOT USE A 40 50 YEAR MORTGAGE OR SOME CREATIVE LOAN TO GET IN A HOUSE.

JUST BID ALOT LESS AND TELL'EM TO SHOVE IT.

YOU AIN'T GOING TO BAIL THEM OUT OR SET THEM UP IN RETIRMENT WHILE SIGNING UP FOR MONTHLY MTG SLAVE PAYMENTS.

do not be ripped off!

BOOOOOOOOOOYAAAAAAAA

Bob

6/05/2006 06:33:00 AM  
Blogger Richie said...

Bob:

Have you ever looked into valium? You shoudl check it out. You're too hyped up, you need to relax a bit.

-Richie

6/05/2006 08:21:00 AM  
Anonymous Anonymous said...

Again, the NYC/NJ/LI market is different than the rest of the country.

If you buy a condo in NJ or NYC, the purchase is subject to approval of the condo board which usually requires at a minimum 10% but increasingly 20% down.

You fail to realize that most household make well in the six figures and their demand is what is keeping prices high. Despite what you hear on television, most people are not spending half their take home pay on total PITI payments. You have some of the highest concentration of wealth in this area

Next, most people still finance with 30 year or even 15 year fixed with 20% down. I/O & Neg Am loans are very rare in NJ & NYC.

40 year & 50 year mortgages don't make much sense since payments are not much lower. You may as well do a 5/1 ARM

6/05/2006 09:50:00 AM  
Anonymous Anonymous said...

Anon 10:50am

Any facts to support what you are claiming?

6/05/2006 11:01:00 AM  
Anonymous Anonymous said...

these products will have interest. after all the average family stays in their houses for 7 years and in that time whether you have a 30 or 40 year mortgage you build little equity during that time + prices only go up right ;)

6/05/2006 11:48:00 AM  
Anonymous Anonymous said...

Yes, incomes here in NNJ/NYC are larger than elsewhere but not enough to justify the price run up. Listen big earners are buying homes in nice communities, not 450k 2 bed, 2 bath condos in clifton, or 500k capes in ridgewood. What this means is less pain in the ritzy areas, but there will still be losses, it is inevitable.

I was talking to a friend of mine who became a broker and increasingly the story is buy looks at a house, likes it wants to make an offer they say 1m, ask is 1.5m both buyer and seller laugh at the others respective price broker tries to get them somewhere in the middle usually it doesn't work. He has a real hard time showing younger people homes because they will not pay 500k for a garden shed.

6/05/2006 12:53:00 PM  
Anonymous Anonymous said...

Dear All,

I was at at a financial seminar this past Saturday and I was briefly chatting with a representative from GMAC. He was telling me that now there is a 30yr fixed rate I/O loan. Any feedback or comments on this mortage product??

R.L

6/05/2006 06:49:00 PM  
Anonymous UnRealtor said...

Forbes:

Of those who borrowed or refinanced in 2005, 29% have zero or negative equity, calculates First American Real Estate Solutions.

http://www.forbes.com/free_forbes/2006/0619/168.html



Also, last I checked, NY City hasn't moved in the last five years. Anyone paying these speculator-driven bloated prices is insane.

6/05/2006 11:22:00 PM  
Anonymous UnRealtor said...

More from Forbes:

Already inventories since last year have jumped 91% in Boston, 236% in Miami and 149% in Los Angeles. Asking prices have been cut on one-third of listings in Boston, San Diego, Sacramento, Los Angeles and Miami. Nationwide median prices will probably fall at least 20% before the break is over. It will take a 35% fall to return prices to their long-run link to the Consumer Price Index; markets overshoot on the downside as well as the up.

http://www.forbes.com/free_forbes/2006/0619/168.html

6/05/2006 11:24:00 PM  
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Anonymous Anonymous said...

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6/21/2006 02:05:00 PM  
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6/23/2006 10:47:00 PM  
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6/24/2006 07:59:00 PM  
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6/26/2006 08:09:00 AM  
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