Do you think we’ll see longer term mortgages?

[flygirl]

I was reading somewhere that 40 year mortgages are going to be more common and perhaps 50+ yrs so that more people can afford to buy?

On a side note, I know this couple who has serious spending problems-they were both 70 this last year, and he’s going to retire in June right after they take out a mortgage for the house they are building.  It’s a $700K house, they are putting down $70k and taking out a 30 year mortgage.  I don’t think they have a clue how they’re going to pay the mortgage every month.

But for those who are younger and have young families, I can see why amortizing out 10 additional years would be helpful.  

[midwestmama]

I have not heard about 40 or 50-year mortgages, but I can imagine that would be the only way for it to be affordable for more people to buy a home.

To be honest, it's shocking that a 30-year mortgage would get approved for a couple in their 70s. Highly unlikely they will even live as long as the mortgage term. But maybe they are hoping it will get approved, knowing that they won't ever be responsible for having to pay it off.

[wildrice]

That's interesting. If that happens, I would probably expect banks to approve based on age, which may currently be illegal? But I can't imagine approving even someone in their 30's for a 50 year mortgage... It would mature well after retirement age and the chances of the bank getting their money at that point would be greatly reduced. I think anything that is going to extend people past around mid 60s is probably not ideal for the individual or the bank.

I mean we bought our house with a 30 year mortgage at age 38 so I'm somewhat talking out both sides of my mouth with that comment! But that was actually one of the reasons why I wanted to buy when we did - I didn't want to be looking at a mortgage payment past retirement age. We've since refinanced to a 20 year term and I'm much more comfortable with that when looking at our long term financial picture.

[Susie]

On one hand, it would be a key way to ease the barrier to entry for homeownership.  That is probably a good thing.

OTOH, it would significantly increase the total interest paid, which may or may not be in buyers' best interests.  In the early years of the mortgage, an even smaller portion of the monthly payment would go toward principal than with a 30 year loan, so minor fluctuations in value could lead to underwater owners, especially with <20% down.  I would expect to see higher rates to balance the added risk for lenders, at which point buyers might as well just do 30 year/lower rate.

I don't really think the age issue bothers me that much.  The number of people who buy a house and keep the house through paying off the 30 year loan might be higher than usual among buyers in the ~2021 period of <3% rates, but generally speaking I don't think the number is all that high.  The 30 year loan is more of a standardized financial tool in the US, than a commitment to owning a home for 30+ years and paying it all the way off.  We owned our last house for 13 years, and had 3 different mortgages in that time, one to purchase, and two opportunities to refi and lower our rate by 1-2% each time, before we eventually sold it.  We bought our current house in 2021 with a 30 year loan at 2.75%.  We actually might keep that loan for 30 years and decline to pay it off until we're about 70, but that's unique to the rate and time that we bought.  

My dad bought a vacation house in 2017 with a 30 year loan and 20% down.  He turned 65 a month later.  The odds of him living to 95 and actually paying off the purchase loan probably aren't great, but he was already retired when he bought it, he can afford the monthly payment now, and we'll deal with the rest later.  (I'm actually curious, if he died, how long we could keep that mortgage in the name of his estate, since it's at ~3.25% and way below current market rates.)

The US is already an outlier in offering 30 year fixed rate loans, I would be surprised if that extended further to 40.

[krystee]

My concern is 40-year mortgages just drive house prices up more and don’t help us reckon with the fact that houses have just become too expensive for the average American.

I’m not sure age is much of a factor (for the banks—individuals will have to really consider that factor) for all the reasons Susie said. The banks are going to get their money one way or another, whether by the sale of a house after death or foreclosure if a retiree can’t pay.

[brooke77]

I can see the appeal of a longer-term mortgage with lower monthly payments. I work with a lot of younger people (late 20s/early 30s) who pay high rent, but can’t afford to buy (HCOL area).

I took out a 30 year mortgage (at 40) and was also shocked that we were granted that term. We HOPE to pay it off in about 15 years, but it is still a bit stressful to think we will have a mortgage at age 70.

[Deleted]

What in the distopian universe....

So instead of affordable housing, restricting AirBnBs and Rental Companies, or increasing wages we are going to increase the borrowing term so banks earn more money... swell. This is slapping a bandaid on a broken leg and calling it good.

[mlkgls]

I wonder if we’ll start to see less square footage with new builds instead. One of the podcasts I listen to during my commute (Clark Howard) briefly touched on this recently. I grew up in a 900 and then a 1800 sq ft home, and I don’t remember them feeling small. We have more than enough space now with 2300, but I’m guessing we’re definitely on the smaller side compared to the newer nearby neighborhoods. 

[sadlebred]

mlkgls I love Clark Howard! I've seen him "in the wild" here in Atlanta before out and about with his wife.

Around here I don't think we'll see smaller builds. Developers want to get every square foot out of a tiny lot. Where I am it's only infill anymore; there isn't a lot of undeveloped land. New neighborhoods other than townhomes are pretty rare.

[konapoppy]

Jan 4, 2024 10:22:34 GMT -5 @lemonlover said:

What in the distopian universe....

So instead of affordable housing, restricting AirBnBs and Rental Companies, or increasing wages we are going to increase the borrowing term so banks earn more money... swell. This is slapping a bandaid on a broken leg and calling it good.

Truly a nightmare. Because also, no one is going to live in that same house for the duration of the mortgage.

[quesyrah]

Jan 4, 2024 19:04:06 GMT -5 mlkgls said:

I wonder if we’ll start to see less square footage with new builds instead. One of the podcasts I listen to during my commute (Clark Howard) briefly touched on this recently. I grew up in a 900 and then a 1800 sq ft home, and I don’t remember them feeling small. We have more than enough space now with 2300, but I’m guessing we’re definitely on the smaller side compared to the newer nearby neighborhoods. 

Jan 4, 2024 19:04:06 GMT -5 mlkgls said:

I wonder if we’ll start to see less square footage with new builds instead. One of the podcasts I listen to during my commute (Clark Howard) briefly touched on this recently. I grew up in a 900 and then a 1800 sq ft home, and I don’t remember them feeling small. We have more than enough space now with 2300, but I’m guessing we’re definitely on the smaller side compared to the newer nearby neighborhoods. 

This definitely needs to happen in my area. So much of the new construction is outrageous and a lot of older homes on the market are quick flips which makes you wonder about the quality of workmanship.

We are a family of 4 and live in a 1,600 sq ft 3bed/1 bath house in not the most desirable area (but totally safe). People ask us all the time when we’re upgrading and say they would “die if I only had 1 bathroom.”

All of our friends bought much bigger, newer more updated houses, but they also have huge mortgages. It seems like few people are willing to live in smaller homes with less updates even if that’s a more affordable option.

I would worry that a 40 year mortgage would push more people into buying more house than they would have on a 30 year mortgage

[flygirl]

I figured it would create a path to homeownership for some but I agree, it will probably just drive prices up. We have a whole townhouse development going up by us, and the starting price of those are equal to the house prices 5-6 yrs ago. I also agree with those that said they need to build more reasonable houses. In my area we used to have 1500-1800 sq ft houses on 1/2 acre lots but now they are all 2500-3500 sq ft houses on the same lots.

[Susie]

Jan 4, 2024 19:04:06 GMT -5 mlkgls said:

I wonder if we’ll start to see less square footage with new builds instead. One of the podcasts I listen to during my commute (Clark Howard) briefly touched on this recently. I grew up in a 900 and then a 1800 sq ft home, and I don’t remember them feeling small. We have more than enough space now with 2300, but I’m guessing we’re definitely on the smaller side compared to the newer nearby neighborhoods. 

Course correcting on the size of homes being built would be so much more prudent than a 40 year mortgage.  Better for families' finances, better for sustainability, lower resource consumption, etc. etc. 

Unfortunately I'm not seeing it yet in my area.  New build listings are 3781 sf... 3481 sf... 3146 sf... still with "prestige" (IDK how else to describe?) features like 2 story foyers, etc. that take huge resources to heat and cool and don't offer any "useful" space.  

We have 4-5 people and 2-3 dogs in 2200 sf (depending on whether my dad and his dog are with us).  Every once in a while when everyone is home and being loud I wish I had one more room, but in general I am not sure what I'd do with another 1000 sf besides spend a bunch more money.

[SusanBAnthony]

I don't understand why I don't see narrow 3 story townhomes in my area. My brother lives in Denver and there are a ton. Typically garage and office on first floor, LR/DR/kitchen on 2nd, and bedrooms on 3rd (either 2 or 3 depending on width).

It makes a ton of sense. You can pack a lot in compared to a SFH, the price is lower, and you get a lot of the features people want that they don't get in an apartment (garage, deck and/or tiny fenced yard, etc). Obviously they are terrible for the elderly with all the stairs but they are awesome for younger folks including families. Yet they aren't building them here.... We just have more 1 and 2 building apartments. And don't get me wrong we also need more apartments. But they aren't affordable either! And they aren't what people want.

[fortnightlily]

Jan 6, 2024 18:19:46 GMT -5 SusanBAnthony said:

I don't understand why I don't see narrow 3 story townhomes in my area. My brother lives in Denver and there are a ton. Typically garage and office on first floor, LR/DR/kitchen on 2nd, and bedrooms on 3rd (either 2 or 3 depending on width).

It makes a ton of sense. You can pack a lot in compared to a SFH, the price is lower, and you get a lot of the features people want that they don't get in an apartment (garage, deck and/or tiny fenced yard, etc). Obviously they are terrible for the elderly with all the stairs but they are awesome for younger folks including families. Yet they aren't building them here.... We just have more 1 and 2 building apartments. And don't get me wrong we also need more apartments. But they aren't affordable either! And they aren't what people want.

They're building several of them where I live but in the randomest locations, not within walking distance to major transit. They literally built a small townhouse development in the parking lot of a shopping center, then kicked out the long time Irish restaurant on the corner because of noise complaints from their live music nights. The restaurant was there first!

[livinitup]

I remember reading about 50 yr mortgages 5-6 years ago - they were creeping into HCOL areas. The article was making the case that with the structure of paying interest-only for decades and gaining little equity, it was basically on par with renting. Except without any of the advantages of renting - maintenance, repairs, increased mobility, etc. So, worst of 2 possible worlds.

[niq]

That's bananas. 30 years is already really long!

I think the rule of thumb is the term of a loan should be no longer than the life of the asset, and after 30 years most things in a house need to be replaced. At that point you are really borrowing against expected price appreciation, which sounds like a terrible idea and will encourage NIMBYs to fight new construction to artificially push up their home prices.

[sandandsea]

Jan 8, 2024 18:02:30 GMT -5 livinitup said:

I remember reading about 50 yr mortgages 5-6 years ago - they were creeping into HCOL areas. The article was making the case that with the structure of paying interest-only for decades and gaining little equity, it was basically on par with renting. Except without any of the advantages of renting - maintenance, repairs, increased mobility, etc. So, worst of 2 possible worlds.

Except it fixes your rate so every year you don’t pay more rent for the same space and as the market increases you still do get equity increases as the value increases. Most people don’t stay in a house 30 years to pay it off anyway so I don’t think it’s such a horrible idea.

[bcv513]

I have a 40 year mortgage on my condo. It was the only way I could afford it on my own. My monthly payment is still cheaper than rent would be. I just try not to think that I could be almost 80 and still have a mortgage

[sicilygirl]

Jan 11, 2024 14:46:53 GMT -5 sandandsea said:

Jan 8, 2024 18:02:30 GMT -5 livinitup said:

I remember reading about 50 yr mortgages 5-6 years ago - they were creeping into HCOL areas. The article was making the case that with the structure of paying interest-only for decades and gaining little equity, it was basically on par with renting. Except without any of the advantages of renting - maintenance, repairs, increased mobility, etc. So, worst of 2 possible worlds.

Except it fixes your rate so every year you don’t pay more rent for the same space and as the market increases you still do get equity increases as the value increases. Most people don’t stay in a house 30 years to pay it off anyway so I don’t think it’s such a horrible idea.

Most interest-only loans are variable rate interest or require you to refinance every X number of years (at least traditionally) so the interest payment would fluctuate just like rent would.

ETA: This seems like the same thing that has happened with vehicle loans. It wasn’t that long ago that 48 months was a crazy-long term for an auto loan, and now people regularly take out loans for 72 months. It seems inevitable that something similar will happen with mortgages, and while it might genuinely help some, it seems ripe for misuse (people just buying more and more house because now they can “afford” more) just like everything else. With more up-front interest being paid, it just doesn’t seem like a financially beneficial undertaking if you don’t live in a part is the country where homes (have the potential to) appreciate at a rapid rate.

[sandandsea]

Jan 11, 2024 17:41:25 GMT -5 sicilygirl said:

Jan 11, 2024 14:46:53 GMT -5 sandandsea said:

Except it fixes your rate so every year you don’t pay more rent for the same space and as the market increases you still do get equity increases as the value increases. Most people don’t stay in a house 30 years to pay it off anyway so I don’t think it’s such a horrible idea.

Most interest-only loans are variable rate interest or require you to refinance every X number of years (at least traditionally) so the interest payment would fluctuate just like rent would.

ETA: This seems like the same thing that has happened with vehicle loans. It wasn’t that long ago that 48 months was a crazy-long term for an auto loan, and now people regularly take out loans for 72 months. It seems inevitable that something similar will happen with mortgages, and while it might genuinely help some, it seems ripe for misuse (people just buying more and more house because now they can “afford” more) just like everything else. With more up-front interest being paid, it just doesn’t seem like a financially beneficial undertaking if you don’t live in a part is the country where homes (have the potential to) appreciate at a rapid rate.

I would expect fixed interest rates with longer terms just like with a 30 year, it wouldn’t have to be variable rates.

[bee20]

I bought a new-build house as the country was starting to come out of the great recession (2012). It had a small yard, garage, and about 1800 square feet. It also has modest finishes (no granite, basic carpet, etc.). The realtor explained at the time that everyone was trying to keep houses modest so they'd be affordable given the tighter lending laws.

I don't want to relive the great recession but it's a sign that builders can still make money off of more modest, affordable houses. Then again, that house is now worth more than twice what I paid for it then, so buyers would still be struggling to qualify.