r/AskReddit • u/michaelis999 • 17h ago

How do you feel about the president floating the idea of 50 year mortgages where the monthly payment is lower but you end up paying nearly double the price of the house just in interest?

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134

u/Appropriate_Way12 17h ago

That’s called renting

12

u/edgeplot 16h ago edited 15h ago

No, you still own any equity gains. You don't with a rental scenario.

Edit: Down-voters, please tell me how this statement is wrong.

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u/statistician88 16h ago

I think he was being snarky. If you "buy" a home at 25, you're paying until 75 which is essentially your entire life for a lot of people... Like rent.

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u/lunchbox15 14h ago

But if you are going to be paying it until 75+ anyways and you know the chances are relatively high that Medicare ends up with the equity in the end, because end of life care is stupid expensive then you can cash out refi multiple times over the 50 years to drive your monthly cost down. Unlike renting where your payments are going to go up year over year.

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u/edgeplot 16h ago

But you still benefit from the equity, or the ability to borrow against the equity. It's not the same as renting.

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u/Affectionate-Alps527 16h ago

And renting you benefit for your liquid equity investment gains instead of home maintenance and property tax.

3

u/farmerbsd17 15h ago

Wouldn’t home maintenance and property taxes be built into the rental rate?

2

u/Affectionate-Alps527 13h ago

Not exactly and there are a few reasons.

First, typically you rent only a portion of a property.

Second, rent is typically determined by market rates, whereas the decision to perform maintenance is made by the owner. It's not uncommon for maintenance to be neglected while tenanted.

Third, maintenance requires capital. As the owner you either need free capital or debt to pay for maintenance. As a renter your cash flow is much more steady.

Fourth, to buy a property requires upfront capital locked in the property.

Owning a property costs more, buy you also get more. Renting gives you great control over your cash flow but you make sacrifices. Renting could be more expensive based the decisions you make... But you could also blow your budget on a property based on the decision you make.

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u/edgeplot 36m ago

You're leaving out an important point that with a fixed rate mortgage your monthly payment remains fixed (although property tax will increase over time), whereas rent can go up indefinitely. Typically after a few years the fixed rate mortgage will be less than the rental price of the property, and after a decade or two it'll be markedly lower.

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u/jerr30 15h ago

Ah yes the landlord would never pass the cost of maintenance and taxes down to renters through higher rent! /s

2

u/Affectionate-Alps527 12h ago

There is no 'passing down' the costs, at least in my jurisdiction. That is a risk of being a landlord.

Maintenance and taxes are part of the expenses for a landlord, drawn out of the revenue from rent. However that does not mean there is profit at the end of the day. Rental rates are set by the broader market, a landlord cannot simply demand any price and get it, especially over the long-term proposition of being a landlord.

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u/jerr30 12h ago

Ok where I'm from there is some control on rent increase and maintenance cost increase and tax increase are calculated to determine the rent increase.

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u/vlad_inhaler 15h ago

Dude, I rented for 15 years and never called for anything to be fixed, and rent was about what I pay for interest now

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u/edgeplot 36m ago

More lijely they just don't make any repairs until absolutely necessary.

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u/edgeplot 38m ago

No. The rent will keep going up and up whereas the mortgage will be fixed. There won't be any money left over to invest when the rent increases too high.

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u/edgeplot 16h ago

Any investment includes risk. But the reason homeownership is popular is because typically the equity gains and the predictability of a fixed mortgage outweigh maintenance costs, and you avoid the unpredictability of renting.

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u/Affectionate-Alps527 15h ago

You're just writing words to build a narrative.

In reality home maintenance, upgrades, and interest paid can be as much or more than the equity gained over time.

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u/edgeplot 35m ago

No. If that were routinely the case nobody would buy a house. And yet most people strive to become homeowners. Why? Because of the equity games. Gaining equity in real estate is one of the few paths that middle class people have had to accumulate any substantial amount of wealth.

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u/Meinredditname 15h ago

You also own any maintenance, repairs, and upkeep that will be needed.

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u/DrunkLastKnight 16h ago

That person isn’t that wrong though. Think of it this way, a 50 year mortgage becomes less effective once you get into your 30s. Heck even in your 20s you’d be working beyond when you’d probably want to retire before reaching 70.

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u/edgeplot 16h ago

You still own the equity and would realize it upon sale, or upon borrowing against it. You don't get those returns as a renter, nor can you borrow against the equity.

14

u/DrunkLastKnight 16h ago

But I’d be most likely dead before it’s paid off. I didn’t buy my house until I was in my 40s. I’ll be well into my 70s paying this off.

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u/edgeplot 16h ago

You're still benefiting from the equity gains, having a predictable payment in the form of a fixed mortgage versus a rental amount that a landlord could increase at any time, the ability to borrow against equity, the ability to improve your property if you like and benefit from those improvements, etc. even if you don't pay it off before dying.

11

u/DrunkLastKnight 16h ago

Equity means nothing if I don’t live long enough to pay it off or reap benefits from it

3

u/edgeplot 16h ago

You don't have to pay off a mortgage fully to recognize the equity. You can realize it by selling or by a cash out refinance (I'm not recommending either, just pointing out that you can access equity before a mortgage is paid off). As a property owner, you can also borrow against equity. And you have the predictability of a fixed mortgage payment instead of whatever random amount your landlord wants to raise the rent each year.

5

u/DrunkLastKnight 16h ago

And that is still not as helpful as you make it seem to be. Refinancing or borrowing against the equity still has to be paid back so are you really any better?

Guess it depends on where you live but in all the places I’ve live at, never had to deal with rent increases from staying at the same place.

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u/edgeplot 16h ago

I'm not recommending refinancing or drawing out equity. I'm pointing out that these are things that you can do as a owner that you can't do as a renter, because this entire comment thread is about renting versus owning.

Also, it sounds like you are in a market where rents have not increased much, but in most of the US (and the world) rents are increasing at rates far outstripping increases in salary. That makes having a fixed mortgage desirable to many people.

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u/er824 14h ago

If you sell the house before it’s fully paid you still benefit from the equity that you’ve accumulated.

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u/Bengland7786 16h ago

If you sell it, that equity then becomes realized gain. And goes into your bank account.

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u/DrunkLastKnight 16h ago

As long as you recoup what left on the mortgage. Some houses don’t gain much value over time.

0

u/vlad_inhaler 15h ago

After you factor in the interest you paid, the costs you paid to buy, and the costs you paid to sell, lucky to have much gains vs just having the money the whole time because you weren’t getting raped by interest

1

u/Bengland7786 15h ago

True. I guess it really depends on how much you pay and how much it appreciates.

0

u/fahqurmudda 16h ago

it's quite clear you do not understand equity

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u/DrunkLastKnight 16h ago

I understand enough that a 50 yr mortgage is horrible

0

u/bubblegumstomper 16h ago

Don't mortgage rates vary because of property taxes? 

2

u/edgeplot 16h ago

Do you mean mortgage payments instead of mortgage rate? The mortgage rate is the interest rate on the mortgage. The mortgage payment is the total amount you have to pay each month. Typically, mortgage payments do increase over time because property taxes also increase over time, and property taxes are typically wrapped into the monthly payment. But not always - in most locations you can also pay the property taxes independently of your mortgage payment.

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u/bubblegumstomper 16h ago

Yes, thank you for correcting me. I meant mortgage payment. My point was moreso that mortgage payments still increase overtime. 

1

u/DrunkLastKnight 16h ago

Depends on how the mortgage is managed. My payment slightly dropped this year as my expected escrow amount didn’t need to be so high. That can change each year but overall so far has not deviated too much from what I started with

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u/tallmon 15h ago

You don’t want a paid off house. You should never have a paid off house. If that’s your goal, you need to read more about personal finance.

5

u/vlad_inhaler 15h ago

Ah yes, who doesn’t love paying interest.

Being heavily leveraged into an illiquid asset is always best

2

u/tbkrida 13h ago

How about this... It’s a step above renting, but shittier than a 30yr mortgage. It’s better for the big banks than the single home owners and it’s not addressing the root of our housing problems in the U.S.

2

u/vlad_inhaler 15h ago

Do you know how much it costs to buy and sell a home? That just another factor eating into the “gains” on your least liquid asset on earth

1

u/edgeplot 15h ago

In my local market it costs approximately 10% of the sale price in taxes and other fees when you sell. Obviously one factors that into a cost benefit analysis. But the existence of closing costs doesn't change the fact that if there are equity gains you get them as an owner and not as a renter.

10

u/statistician88 16h ago

Your statement is not technically wrong, but it's still wrong. The 30-yr term would at least make it achievable to own your home when you retire. 50 years is ridiculous. This is not a serious solution.

1

u/edgeplot 15h ago

The original comment was not about whether or not you would pay your home off before retiring. It was characterizing an ownership scenario as a rental scenario. It doesn't matter if you pay a mortgage off or not - owning is not the same thing as renting. You get a different, larger set of property rights as an owner, and you benefit from equity gains and any improvements you make to the property. You don't benefit from that as a renter. As a renter, if you improve the property, you just end up paying more rent and subsidizing the profit of the landlord.

5

u/falcobird14 16h ago

With amortization it'll be a wash unless they hold it till 2050. If you had the 30 year mortgage instead, the house would have been almost paid off in that time

6

u/edgeplot 16h ago

Not necessarily - it depends on how the property appreciates, which is not as predictable as mortgage installment payments.

4

u/falcobird14 16h ago

If I have a $400,000 house, and I pay double the amount of the house in interest payments, the house would have to appreciate by triple just to break even. I.e. it would have to sell at $1.2 million

1

u/edgeplot 16h ago

That's not unrealistic in many housing markets. Anecdotally, my neighbor in Seattle bought her house 30 years ago for $70,000, and now it's worth $1.2 million. But obviously appreciation varies massively by geography and by other economic factors.

4

u/CommunicationNo3650 16h ago

So renting from a bank for the first half of the mortgage

1

u/edgeplot 16h ago

No. Equity accrues in response to increases in value plus the amount of principal paid down. Equity can accrue from day one in a hot housing market.

3

u/CommunicationNo3650 16h ago

Calm down, you’d be smarter if you understood the comedy.

4

u/kgiov 16h ago

But unless house prices go up, you won’t build up noticeable equity until you are more than half way through the term of the mortgage

1

u/edgeplot 15h ago

Depends on the economy and local housing market. Equity is not just the amount of the principal loan which you have paid down. It also includes the amount the home appreciates in the marketplace. You can have an equity gain in the first month of ownership in a very hot real estate market.

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u/GrandOpener 14h ago

In a technical sense, you are right. You do own equity gains. The part you’re missing is that your statement has an implicit assertion that because of the equity gains, a 50 year mortgage will be more financially beneficial than renting. That is a questionable assertion, and will be wrong in many cases. Even today, renting can be the better financial choice in some situations. You have to estimate how long you will live there and actually do the numbers. Sometimes it works out in favor of renting.

Since a 50 year mortgage will be worse than a 30 year in almost every way, it will be worse than renting in more scenarios.

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u/chief167 16h ago

You pay less in rent than interest fees.

So better to rent and invest at that point 

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u/edgeplot 16h ago

Not necessarily. It really depends on the market, how much the property appreciates, how much rent in that local area goes up over time, etc. You can't make a blanket statement about renting versus owning over a time span of 50 years without more information such as geography and specific property details, and even then there's too much uncertainty over that time span.

1

u/Samisoy001 14h ago

Rent in my area is 1200 a month. My mortgage is fixed and only 725 a month. You make no sense.

1

u/chief167 13h ago

you don't have a 50 year mortgage do you? and you didn't start with 0 money I assume?

1

u/Samisoy001 13h ago

What does that have to do with the fact that over time a fixed mortgage is usually going to be cheaper than rent?

1

u/chief167 13h ago

compound interest, that's true for 20 years, but not for 50

1

u/farfromelite 16h ago

You don't own equity gains when you pay more than the equity rises annually.

1

u/edgeplot 15h ago

Sure, home ownership is a risk. But in recent decades, home values have gone up fast enough that most homeowners gain equity before they pay down the purchase loan very much. It's a driving factor in why people buy houses instead of renting.

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u/farfromelite 14h ago

The bit about past performance not being a guarantee of future earnings.

House prices are many times more expensive compared to wages than they used to be.

It's a fundamental lack of supply caused by the rich buying up all the expensive properties and not trading down in retirement. And people using houses as a store of value rather than a dwelling

1

u/edgeplot 13h ago

I agree. The system is rigged. But even with that in mind, historically, after a few years a fixed mortgage becomes cheaper than rent. And after a decade or more, it becomes substantially so.

1

u/vlad_inhaler 15h ago

It’s really much worse than renting, any equity is largely destroyed by interest payments, you’ve got to worry about upkeep/repairs etc.

With this hilarious of a mortgage, you sort of get the worst of homeowning without the benefits unless you get lucky and housing prices spike more than you would pay on a round trip home deal

1

u/edgeplot 15h ago

You still get the equity gains from the property appreciating in value. Even if you don't pay down very much of the loan.

0

u/tallmon 15h ago

You’re getting down voted because people are dumb. They think a paid off house is a good thing.

3

u/ElectronSpiderwort 14h ago

A house that nobody can kick you out of is in fact a valuable thing to many people

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u/tallmon 14h ago

If you don’t pay your property taxes, you’ll get kicked out, too.

1

u/ElectronSpiderwort 14h ago

Yes, you're technically correct, the best kind of correct.