Are 40-Year Mortgages The New ARM? Or Our Way Out of This Mess?
Well…yes.
When I first saw this option, I brightened up. In coastal New England, we have an economy that continues to defy national averages, and a rental market buoed by the number of foreclosures. Paradoxes. Housing here still isn’t what you’d call cheap — I just posted a 500 sq. ft. condo that is selling for the same price as a 5-bedroom in great condition a friend of mine just sold in Pittsburgh. Will 40 year loans be the ticket out of the Adjustable Rate Mortgage and Interest-Only loan mess that seems so anomalous when we look at the relative economic health of greater Boston?
A 40-year ARM alternative sounds really good. But as a recent Bankrate/MSN Money article points out, the interest rates on these loans could save you a couple of hundred bucks a month and cause you to pay tens of thousands more for the loans. Moreover, if the interest rate is high enough, a 40 year loan might not even give you much of a break. And that’s a real sore spot, because the Banking industry has the power to put the market back on the rails if they play fair with people caught in the clinch by bad policymaking and under-regulation.
The same article talks about 40-year mortgages getting “Fannie Mae approval.” I wonder if Fannie Mae has a new loan program for buying swampland in Florida, or a great rate on a 30-year note on the Kernwood Bridge.
Dan Green has a much different take on this, however, and his position is worth listening to if you’re faced with foreclosure or ridiculous New England rents (interest on a 40 year mortgage is a big tax deduction; rent, not so much). And he’s even talking about 50-year loans as ironically a “short-term borrowing strategy.”
I’d like to see less inventory in the market, so I’m willing to listen. I have one friend who is going to pay $1300 a month for an apartment (she’s tired of roommate drama) when she could afford a 40 year mortgage easily; but she gets a $10,000 gift from her elderly father each year at tax time, and could make large payments against principle every year and effectively cut the loan down to 30 years anyway. She can’t get a 30-year note on anything she likes because the bank won’t count her dad’s distribution as income.
She is not the norm.
What might make even more sense for all parties concerned is if banks wrote 40 year notes at interest rates that, frankly, ignore the recent past of near-foreclosure homeowners. If they took these ultra-long-term loans and were happy with the great profit to be had long-term even at reduced rates, and considered the very tangible benefits of an appreciating market to the banking industry.
Yes, homeowners effed up. Yes, there should be consequences for your actions, young man. Maybe new lower-interest longer-term notes could stipulate Hail Marys or trips to bed with no supper — whatever. We need a real solution from Fannie Mae, not more snake oil. In their current incarnations 40-Year home loans look like a mostly bad idea for everyone but the folks who are pushing them.
Image links to source.
Buy-In Condos In Salem You Can Afford Right Now
