I was watching a piece on trump’s idea of a 50 year mortgage.
A 400.000 dollar house (which is pretty much in line with average Northern European prices, I reckon) with a 6% rent (or whatever it’s called) costs the buyer 2.300 dollars a month over 30 years. And that would nean 400 something thousanf interest paid over the 30 years. Over 50 years that would amount to 800.000 dollars interest paid.
I am not good at counting. I can’t comprehend why 6% over anything could lead to double the loan being paid in interest.
But 2.300 dollars a month for a house???
That surely must be over half the income of a normal family?
Or do things work differently in the US?
Really strange.
@shavixmir saidIts not rocket science. In the first few years most of the payments go toward interest and a very small amount toward the principal.
I was watching a piece on trump’s idea of a 50 year mortgage.
A 400.000 dollar house (which is pretty much in line with average Northern European prices, I reckon) with a 6% rent (or whatever it’s called) costs the buyer 2.300 dollars a month over 30 years. And that would nean 400 something thousanf interest paid over the 30 years. Over 50 years that would amount to 800. ...[text shortened]... r half the income of a normal family?
Or do things work differently in the US?
Really strange.
Eg Year 1
Total Paid = 27,600
Interest - 24,000
Principal - 3,600
Over the 30 yr term interest payment can easily cross the principal depending on the interest rate. In a 50 year mortgage it will be worse.
@shavixmir saidUnfamiliar with time value of money principles, eh?
I was watching a piece on trump’s idea of a 50 year mortgage.
A 400.000 dollar house (which is pretty much in line with average Northern European prices, I reckon) with a 6% rent (or whatever it’s called) costs the buyer 2.300 dollars a month over 30 years. And that would nean 400 something thousanf interest paid over the 30 years. Over 50 years that would amount to 800. ...[text shortened]... r half the income of a normal family?
Or do things work differently in the US?
Really strange.
Let's look at is this way... if you borrow $1,000,000 and pay 6% interest per year and NEVER pay a dime of principle, you'll be paying $60,000/year. After 30 years, that's $1.8 million. After 50 it's $3 million in interest. This is three times what you borrowed originally AND it's a relatively low interest rate.
When you amortize the loan, you need to fold in the cost of the principle, making the payments more. Each month, you're paying some principle plus the interest accrued for that month. At the outset, when the principle is high, the payments are mostly interest. As the principle slowly decreases, the monthly payments become less and less interest and more and more principle, until the last payment is almost all principle, as there's very little remaining interest generated by then.
Take the amount needed to pay the interest generated and some principle so that the principle balance gets to zero after 360 months and you have a 30 year mortgage payment. Do it for 600 months and you have a 50 year mortgage payment.
What you'll find is that that payments aren't much lower on a 50 year. Take a 30 year mortgage of a $500,000 loan amount with an APR of 6%. That's a monthly payment of $2,997.75. Let's say the 50 year rate would be 6.25% (it probably has to be at least a little higher for it to be worth it for banks). That's a monthly payment of $2,724.86. You're paying about $275 less per month but adding 20 YEARS to the term. Doesn't really seem worth it. If the rate were 6.5% for a 50 year (more realistic), the payment savings shrinks to only ~$180 less than the 30 year.
If you are interested in understanding all of this, I high recommend this basic free course:
https://www.khanacademy.org/economics-finance-domain/core-finance/housing
@sh76 saidSo, basically, the plan for this 50 year mortgage is going to be a financial trap?
Unfamiliar with time value of money principles, eh?
Let's look at is this way... if you borrow $1,000,000 and pay 6% interest per year and NEVER pay a dime of principle, you'll be paying $60,000/year. After 30 years, that's $1.8 million. After 50 it's $3 million in interest. This is three times what you borrowed originally AND it's a relatively low interest rate.
When you ...[text shortened]... this basic free course:
https://www.khanacademy.org/economics-finance-domain/core-finance/housing
@shavixmir saidIt's a financial tool based on simple time value of money principles. It's neither good nor bad, and certainly not a "trap."
So, basically, the plan for this 50 year mortgage is going to be a financial trap?
Is it worth it? It depends. If you're planning on selling in a few years anyway and need to conserve monthly cash flow, it might be a great idea.
It really doesn't have a positive or negative moral value. It's a device - it's terms to a transaction.
@sh76 saidIt’s going to cost a lot of people a lot of extra money.
It's a financial tool based on simple time value of money principles. It's neither good nor bad, and certainly not a "trap."
Is it worth it? It depends. If you're planning on selling in a few years anyway and need to conserve monthly cash flow, it might be a great idea.
It really doesn't have a positive or negative moral value. It's a device - it's terms to a transaction.
That doesn’t sound like sound advice from the government.
@shavixmir saidNo, they do not.
I was watching a piece on trump’s idea of a 50 year mortgage.
A 400.000 dollar house (which is pretty much in line with average Northern European prices, I reckon) with a 6% rent (or whatever it’s called) costs the buyer 2.300 dollars a month over 30 years. And that would nean 400 something thousanf interest paid over the 30 years. Over 50 years that would amount to 800. ...[text shortened]... r half the income of a normal family?
Or do things work differently in the US?
Really strange.
The problem is that first time home buyers simply can't swing it anymore, unless they have wads of cash for a huge down payment (maybe from family).
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@shavixmir saidIs it any worse than any other loan that you can pay interest only ad infinitum, like credit card debt or a home equity line of credit?
It’s going to cost a lot of people a lot of extra money.
That doesn’t sound like sound advice from the government.
At least with a mortgage, the rate is fixed and generally pretty low (because it's secured by real estate).
There are interest only mortgages for x years.
In most cases, you're not going to live in the house for the entire length of the mortgage anyway. And even if you do, you can refinance later to cash out or to get a better rate. So, the mortgage expiration date is almost irrelevant.
At some point, you have to trust the consumer to make the best decision for himself.
@shavixmir saidSuch a loan could be used effectively for someone to get the house and then make bigger payments as they can. However it could also be a money pit for people who assume that making minimum payments will eventually pay off the loan. There are a lot of people in the world who aren't savvy with complicated financial mathematics and have faith in the system not to let that happen to them.
It’s going to cost a lot of people a lot of extra money.
That doesn’t sound like sound advice from the government.
@AThousandYoung saidIt's the same in the UK of course, hardly anybody can afford to buy houses anymore, unless mater and pater chip in...Since we've lived here in Indonesia, (about 20 years) a middle class has emerged from that which were village or urban communities, and people now want tickey - tackey houses on estates with a security gate and all, because it makes them feel posh, and for which they pay through the nose. So the banks have moved in offering long - term finance, with interesting interest, of course, and the word for 'interest' over here is 'bunga', which also means 'flower', so you're paying a lot of flowers, which doesn't make it sound quite so bad....
Yes the price of housing has risen way out of proportion relative to normal peoples' incomes.
@shavixmir saidWhere we live in Pennsylvania is a housing development, ugly two or three story houses for sale and one sign says "FROM the 800,000s"
I was watching a piece on trump’s idea of a 50 year mortgage.
A 400.000 dollar house (which is pretty much in line with average Northern European prices, I reckon) with a 6% rent (or whatever it’s called) costs the buyer 2.300 dollars a month over 30 years. And that would nean 400 something thousanf interest paid over the 30 years. Over 50 years that would amount to 800. ...[text shortened]... r half the income of a normal family?
Or do things work differently in the US?
Really strange.
So for THOSE POS houses, I guess you need a 100 year mortgage like in Japan, grandkids paying off the grandparents house.
@shippingtest saidI heard China built way too many houses for demand and most are sitting empty
This reminds me of the crazy scene in China's real estate market around 4 to 5 years ago, when mortgage interest rates seemed to be less than 4%
@AThousandYoung saidhttps://www.reuters.com/world/china/even-chinas-14-bln-population-cant-fill-all-its-vacant-homes-former-official-2023-09-23/
I heard China built way too many houses for demand and most are sitting empty