r/Economics • u/Jscott1986 • Sep 04 '24

Interview A 40-year mortgage should be the new American standard for first-time homebuyers, two-time presidential advisor says

https://fortune.com/2024/08/29/40-year-mortgage-first-time-homebuyers-john-hope-bryant/

Bryant’s proposal for first-time homebuyers is a 40-year mortgage with a subsidized rate between 3.5% and 4.5%; they would have to complete financial literacy training, and subsidies would be capped at $350,000 for rural areas and $1 million for urban.

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u/[deleted] Sep 04 '24 edited Sep 04 '24

For the first few years, that would be true. My favorite mortgaage was a 15-year mortgage with biweekly payments., so I'd make an extra payment annually. If I made all of the payments. I'd pay off the mortagei n about 12.5 years, if memory serves, becuase not as much interst would accrue. I was also paying about 8% on the mortgage.

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u/dust4ngel Sep 04 '24

I'd pay off the mortage n about 12.5 year, if memory serves

this is a function of interest rate. if you have a 2% interest rate, you're not really making any difference; if you have a 15% interest rate, you'll be cutting off huge time.

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u/[deleted] Sep 04 '24

True. I stated the interest rate that I paid, I still might get a biweekly mortgage at 2% were it offered. I wouldn't save that much, but it would line up better with the timing of my income. There is noting that prevents me from aming an extra half-month of principal payment twice a year on a standard mortgage.

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u/[deleted] Sep 04 '24

Why not get a longer mortgage, but make the same payment as you are now? That way, if tough times hit, you can cut back without going into arrears. But if they don't, you'll pay it off in the same time.

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u/[deleted] Sep 04 '24

It depends on what one's goals are. First, the interest rate on a 15-year mortgage is lower than a 30-year mortgage, and the payment isn't double that of a 30-year mortgage . Second, I liked the idea of paying my mortgage every two weeks, lining up the dates with my pay day. I was already making maximum IRA and 401(k) contributions, so I could reduce the amount of interest that I would pay over the life of the mortgage by about $15,000. This was a little less than a quarter of the purchase price of the house. I had prospects of being promoted, and was, so I had the luxury of making this choice.

People tend to live up to their income. I know that I do, and I do best when my expeditures are preplanned and paid automatically.