"Borrowers this is 'the 50 Year Loan' ~ '50 Year Loan' this is America's Borrowers".
The introduction probably won't go exactly like that but expect to see the term and hear the buzz. Buyers and Borrowers with property in high value areas can expect to be the initial targets by the Loan Brokers of America with California probably being #1 on the list. Some lenders see the offering as an alternative to "interest only" loans and a tool to shrink those monthly obligations. Some consumer advocates and financial professionals worry that buyers who need to stretch payments over an additional twenty years are coveting too much house-wanting to shoot for the moon rather than getting that starter house and working their way from there as is traditional. Maybe this is a good approach if you're getting a 50 year loan? The last brainstorm of the lending community was the Option Arm wherein you could make a minimum payment one month and find the next month that the outstanding balance grew because the minimum payment due was less that the interest that had accrued on the outstanding balance. This will be safer as it carries a fixed interest rate (as currently planned, but be careful, because if it looks like a duck and walks like a duck, it just might be an adjustable rate loan (duck) with a fixed interest rate for a short term and then yadda, yadda, yadda. Read all about it.....
While the 50-year fully amortized mortgage certainly means a slower rate of repaying the balance, at least the balance is being reduced, not remaining stagnant or increasing. It is probably not the product for someone who wants a home for more traditional reasons, such as creating a nest egg, he says. Currently, you are not likely to find 50-year home loans at your bank or credit union. Most of the loans are coming from mortgage brokers.
In addition, while they can fit certain buyers in special circumstances. Rates for 50-year mortgages tend to be about 25 to 50 basis points higher than the rates on 30-year fixed-rate mortgages. A basis point is one-hundredth of a percent.
Critics contend that, for all practical purposes, a 50-year mortgage is not much different from an interest-only loan. While the monthly payment is lower, you will also pay more interest.
Remember that not all 50-year loans are or will be the same. While some loans offer a fixed-rate for 50 years, others offer options that include a fixed rate for the first three or five years, and then switch to an adjustable rate. Still other versions amortize the principal over 50 years but require a balloon payment after 30 years for the balance of the loan.
California-based Statewide Bancorp started offering 50-year loans last year, with fixed-rate, as well as ARM, versions. Both types run for 50 years with no balloon payments required. So far, more than 1,000 borrowers have opted for the mortgages. Proponents of the product warn that it is not for everyone.
Buyers, who consider these products should, step back from the buyer's frenzy. Ask yourself: Does it make sense? What are the pros and cons? What is the best thing that could happen to me? What is the worst thing? Because you pay so little toward the principal, it is not a good choice for someone who might want to move within a few years; additionally, rates are so low now and values are so affected by the economy, it wouldn't make a lot of sense if you could possibly be moving in a few years. A buyer should also be anticipating some sort of increase in income. However, when that money comes, go ahead and pay more money against it. At that point, the smart buyer starts making payments equivalent to a 30-year or 15-year note. However, similar to handling credit cards, many consumers mean well but do not follow through.
Some loans also carry prepayment penalties through the first few years of the note. Since you are already not building much equity, this can make it more expensive to refinance in the early years of the loan.
Since buyers often look at a 50-year loan as a temporary solution, refinancing or resale before the home is paid off is a virtual certainty. Weigh that going into the deal, too. Analyze how a shortage of equity could affect refinancing. Unless you pay extra money toward the equity or see a dramatic increase in the value of your house, your refinance will probably be a lot more like simply buying the same house all over again.
If that cloud in your crystal ball clears up before mine, please contact me.
Keep the faith!
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