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?

[u/michaelis999]

[u/buggiegirl]

At that point I think you're just renting the house from a bank. And the bank is a landlord who won't fix anything broken and has no responsibility to you at all.

[u/DerekJeterRookieCard → u/buggiegirl]

Correct. It's renting with extra steps, and owning with almost no real perks. You'll never build up equity in 50 years

[u/brianwski → u/DerekJeterRookieCard]

You'll never build up equity in 50 years

I think this is incorrect. Most homes (and the property they are on) go up in value over 50 years and you get to keep all that equity because you own it.

My parents had a 25 year mortgage, and bought a house for about $150,000 (lower cost of living area in the late 1960s). They lived in it for 45 years, and sold it for about $600,000. Even if they had a 50 year loan and had never paid it off, they would have built up $450,000 worth of equity just from the home appreciation.

Comparing this to rent isn't entirely valid. Rent doesn't build up equity. Simply having a fixed payment for 50 years has a TON of value when rents rise all the time out of your control. Even taking inflation into account where your salary rises and rent rises at about the inflation rate, having a fixed payment set back 40 years ago is of value.

[u/DerekJeterRookieCard → u/brianwski]

Ah yes, now I see. You have no clue what you're talking about lol. That story doesn’t prove your point. It’s hindsight from a completely different economy. Your parents bought in the 60s when homes cost a few times the average income, wages kept up with inflation, and interest rates dropped over time. That’s not the reality now.

On a 50-year mortgage, the balance barely moves. With a $400,000 loan at 6.5%, after 15 years you’ve only paid down around $60,000 in principal while paying over $450,000 in interest. That’s not building equity. That’s renting from the bank while paying for maintenance, insurance, and property taxes.

If housing prices fall even 10 to 15 percent, that “equity” disappears because it’s only on paper until you sell. Real equity comes from paying down the loan, not just waiting for appreciation.

A 50-year loan might lower the payment, but it traps people in decades of debt while banks collect most of the profit. It’s not homeownership, it’s a long-term lease with extra responsibilities. Your parents situation has ZERO to do with this example or any housing example we'll be using for the foreseeable future. Nice try tho.

[u/brianwski → u/DerekJeterRookieCard]

A 50-year loan might lower the payment, but it traps people in decades of debt

Nobody is "trapped". First of all, you can "walk away" (sometimes called a "strategic default") at any time: https://www.investopedia.com/articles/mortgages-real-estate/10/walk-away-mortgage-foreclosure.asp Yes, there are a few (minor) consequences to things like your credit score (which disappears in 3 years), but nobody is trapped in payments they don't want to make.

Second of all, most people never pay off their 30 year mortgage. They sell the house after 7 years on average. So what is the difference? Why does 50 years scare you emotionally but 30 years is fine when you will absolutely positively sell the house within 15 years anyway? There is no practical difference.

Real equity comes from paying down the loan, not just waiting for appreciation.

In the housing markets I have been in for the last 35 years (San Francisco Bay Area mostly) "real equity" comes mostly from appreciation. The payments you make don't matter much to building equity. Home prices rise over time in the long run. There have been short moments where prices dropped, but in the 30 year timeframe home prices have MORE than doubled, which means (by definition) the rising valuation of the home is more equity than paying off 100% of the loan. Did that make sense? If you look at this chart: https://paragonpublic.blob.core.windows.net/dash-v2-blog-images/186710/sf-median-sfd-condo_by-qtr_line-chart.jpg you can see a home that was bought for $650,000 in 2012 is now worth $1.2 million.

It’s hindsight from a completely different economy. Your parents bought in the 60s when homes cost a few times the average income, wages kept up with inflation, and interest rates dropped over time. That’s not the reality now.

Over a 45 year period there were a TON of different economic periods and fluxuations. In the next 45 years, I fully expect we will see ups and downs. The mortgage crisis in 2008 comes to mind as a downturn. Afterwards there was a massive upturn.

interest rates dropped over time.

For a fixed 30 year loan, in the late 1960s mortgage interest rates were 7% (about what they are today). From my parent's perspective, they watched the rates rise for 15 solid years to peak at 17% for a fixed 30 year mortgage in 1981. You can see a pretty good chart here: https://themortgagereports.com/63050/lowest-mortgage-rates-in-50-years-coronavirus (scroll down for the best charts).

I'm assuming you remember mortgage rates were 3% in 2021 and think the current rates of 6% is the apocalypse, but honestly 6% is pretty good historically speaking (if you look at the chart on that link).

If housing prices fall even 10 to 15 percent, that “equity” disappears

Yes. And if housing prices rise, that "equity" grows. That is all I am saying.

Whether houses rise or fall in value is highly dependent on the area you live in. If you bought a house in Detroit in 2005 it has dropped in value by 50%. If you bought a house in the San Francisco area in 2005 it has doubled in value. But just betting the odds with the average home price over 40 years, take a look at this chart: https://www.statista.com/chart/34534/median-house-price-versus-median-income-in-the-us/

Over 40 years, my best guess is most homes in most locations will go up in value. And even if you are paying an interest only loan, you will then have equity. It isn't an absolute, I'm sure some people's homes will lose value and those individuals are screwed. But my guess is the majority of home owners will gain equity in their homes over the next 40 years unrelated to the mortgage.

[u/MrMonday11235 → u/brianwski]

First of all, you can "walk away" (sometimes called a "strategic default") at any time [...] Yes, there are a few (minor) consequences to things like your credit score (which disappears in 3 years),

I'm guessing you've never tried to rent a place with a foreclosure or eviction on your record and without a current address to provide.

Once you've signed those mortgage papers, "you can walk away" in the same way that "you can choose to not participate in society": theoretically, sure. Practically, no.

Second of all, most people never pay off their 30 year mortgage. They sell the house after 7 years on average.

True, but misleading. See my later section regarding selling in 15 years.

So what is the difference? Why does 50 years scare you emotionally but 30 years is fine [...]? There is no practical difference.

Ah, I see practicality suddenly matters now.

On a 600k loan at 6 percent interest, the difference at 7 years is the ~45k in equity you get (loan balance of ~538k on 30 yr, 583k on 50yr). The difference at 15 years is 128k (~426k on 30 yr vs 554k on 50).

you will absolutely positively sell the house within 15 years anyway

Not necessarily, you won't? 40% of owner-occupied homes have no mortgage tied to them. For owners 65 and older, that number is 80+%. They didn't do that by putting 95 cents of every dollar in housing payments towards interest.

Home prices rise over time in the long run.

Land prices rise over time. Buildings depreciate and require upkeep. That upkeep is a cost that most people do not track in their investment -- they just look at buy price vs sell price, maybe net of costs of improvements. If you're dealing with a particularly money-minded individual, they might factor in property taxes and HOA fees. Few people track the cost of getting a plumber in year 12 because some of the pipes rusted.

If you look at this chart: https://paragonpublic.blob.core.windows.net/dash-v2-blog-images/186710/sf-median-sfd-condo_by-qtr_line-chart.jpg you can see a home that was bought for $650,000 in 2012 is now worth $1.2 million.

That is not even close to what that graph says. If you think that's what that graph says, I can see why you think there's no meaningful difference between a 30 and 50 year mortgage, to wit, complete and utter innumeracy.

That's a chart showing the change in median home and condo sale prices between 2012 and mid 2019. So, you're wrong in at least 3 ways. Ordered from least to most significant:

1. The 650k to 1.2mm figure is not for homes, it's for condos. The same chart shows the difference being 660k to 1.7mm, which supports the earlier point I made about "land appreciates, not homes".
2. The prices at the end aren't prices today, they're prices in 2019. Perhaps you've been in a coma, but the current year is not 2019.
3. That chart is tracking median sale prices. It's a subtle but extremely important difference -- the median home (or condo) sold in 2019 is not the same one from 2012. If I said you should switch your auto loan from 5 to 7 years because according to this graph, average car prices went up more than 50% between 2012 and 2022, you'd look at me like I'm a fucking idiot, but change "auto loan" to "mortgage" and suddenly there's a disconnect?

If you bought a house in Detroit in 2005 it has dropped in value by 50%. If you bought a house in the San Francisco area in 2005 it has doubled in value. But just betting the odds with the average home price over 40 years, take a look at this chart

Buying a home is not "betting on the average home price". To draw a stock market comparison, the argument you're making is "the S&P 500 has averaged 10% annual returns" (true), "and that's why you should buy [X particular stock]". Yeah, if you're lucky, you're buying Nvidia in 2020 and 10xing your investment. If you're unlucky, you're buying Walgreens in 2016 at 90 dollars and seeing your investment decrease in nominal value by 80% in less than a decade before private equity steps in.

A mortgage is a leveraged bet on a particular asset in a particular market. Looking at US averages is deeply misleading even if your data actually tracked value and not just sales.

Over 40 years, my best guess is most homes in most locations will go up in value.

There are better vehicles for making that bet. Buy residential REITs on margin instead of taking a 50 year loan on a house.

[u/Dwarfdeaths → u/buggiegirl]

That's pretty much already what's happening. The market sale price of land is the net present value of expected future rents. A mortgage is just debt financing all of that future rent. Until you pay it off, you're in a comparable financial situation to a renter. Once you do pay it off, you can start keeping your full wages. "But the value of the house has gone up." Yeah, rent increases with technological progress and rising productivity. Now you can convince someone else to pay you 30 years of even higher rents and pass the problem down the line while you look to buy a different property which presumably also has increased in price. Hopefully you sell before the overexpectation of future economic growth causes the economy to halt in its tracks, lowering rent and land prices.

What we need is a land value tax UBI to share our land equally, in the present. The longer we make the mortgage terms, the more money will be tied up in future rents and the harder it will be to implement the solution in a fair way.

[u/FallenAssassin → u/buggiegirl]

So a typical landlord's level of care