What is the 50 Year Mortgage?
The latest innovation out of California is the 50 Year Loan. Sound daunting? Statewide Bancorp doesn’t think so. They think it is almost a necessity in a state where gas prices are taking such a huge chunk out of disposable income. Housing is considerably high in California, as well. With 5% of new home loans using the 40 year term, a 50 year term seems a logical progression. But is it logical? Let’s see.
Why Would I Want 50 Years?
People move an average of once every four years, so whether the loan is a 30, 40 or 50 year loan it will not be paid for by the time the house sells. Prospective borrowers are cautioned that with a 50 year loan they will build equity very slowly. In reality homeowners are looking at the appreciation on the property as an equity builder, rather than the amount they are paying off the principal. Many borrowers are choosing interest only options or multiple payment options, in which one of the options results in negative amortization (the payment is less than the interest plus principal and the negative amount is added onto the principal). Piggy back loans that allow the borrower an 80% first and a 20% second mortgage rely on the presumed appreciation to keep a borrower from defaulting. In certain areas in California the home values increase at least 20% a year. This is so much more than one can earn except in the riskiest of investments that it is no wonder Californians are trying to buy more houses than they really can afford.
That is the clincher. What one can afford in a 50 year loan is considerably more than what one can afford in a 30 year loan. If one chooses a 50 year adjustable rate loan with a five or seven year rate lock, the house, if properly maintained, will have appreciated considerably, and a refinance with lower rates and better terms is in order before the rate expires. Most home buyers are optimistic about their future. They believe their salaries will go up and they will be in a better position in five years time. With a five year payment history and a lower loan to value because of the appreciation, the borrower should be able to negotiate a favorable rate.
Housing prices fell by 3.3 percent in the first quarter of 2006 in many parts of the country. Overall prices were still up 10.3 percent over last year. In Los Angeles, from where the 50 year loan hails, there was a drop of 0.8 of a percent in housing prices. Inventories of houses for sale rose, and houses stayed on the market for a longer period of time. When this happens, mortgage companies become creative in trying to lure prospective borrowers to their doors. The increase in interest rates has not helped the housing market, either. A 50 year long definitely offsets the rise in interest rates.
Viability of the 50 Year Mortgage?
Will the 50 year mortgage keep the housing boom from going bust? That remains to be seen. What also remains to be seen is whether or not it will catch on in other parts of the country.
How can I get a Fifty (50) Year Fixed Rate Mortgage?
We would be happy to help you apply for a Fifty (50) Year Fixed Rate Mortgage. Click here to get started.
How can my FICO/Credit Score affect my mortgage rate
Your Credit Score and FICO are very important. If you scored between 720 and 850, you are A-Paper. You have good credit. If you scored below 660 you may have trouble finding a lender, and if you scored below 620, you are Sub-Prime, or Non-Prime.
Q: What are some other options if I am looking for a mortgage with a lower monthly payment?
A: You can also look into Adjustable Rate Mortgages or Interest Only Loans. You may find they suit your needs.
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