The 50-Year Mortgage: Quick Fix or Long-Term Trap?

Steven L. Burch (00:00)
All right, welcome to the Leading Lane podcast. ⁓ Today we're gonna talk about the hot buzz right now with in real estate, the 50 year mortgage. What are your thoughts Ashley? Let's dive in.

Ashley (00:16)
Yeah, I what this is like two days or two days worth of all this 50 year mortgage stuff. You know, I think that at one time there was a 40 year mortgage. I don't think it was ever used much. I I vaguely remember people talking about it and I don't really ever think it took off. You know, there's the talk of the 50 year mortgage I think is trying to make a monthly payment.

Steven L. Burch (00:18)
Thank

Ashley (00:44)
more affordable, right? That's what I think the main focus is on. And I do think that there are a lot of other things that are being missed by doing something like that. So at least from the information I have, what I would see, I don't necessarily think that a 50 year mortgage would be good. I think that there might be very small circumstances where it would be good. But my concern is ⁓ equity in your home.

Right. So they always say like real estate is a wealth building opportunity. Well, sure. But if you're on a bunch of 50 year mortgages and you're not paying down your mortgage at all, like the wealth isn't going to be there. So I think in my 15, almost 15 years real estate, like people were able to make substantial moves in homes because of what they had for equity or people were able to take a HELOC on their house for either their kids.

you know, college tuition or whatever, home improvements, all those types of things. I just think that that's one big piece that would go away, like the actual equity that you're obtaining from your home. And I think the likelihood of someone again staying in their home for, you know, 50 years, 10 years, what do we say, like seven is the average that someone stays in their house? Like, you wouldn't have paid off that much. So then when we go to sell, like what what are we looking at when we go to sell in that short of timeframe?

So that's like my initial thoughts. have more thoughts, but I am interested as to what you think as just far as off the bat.

Steven L. Burch (02:19)
You know, my first thing, and let me be clear, I have not read up 100 % on this, so this is just from my opinion from the things that I've read so far. But when I hear about stretching out the mortgage, couldn't be more affordable, 100%. But then I always flip it to the side of things of credit cards.

Look at the way like people are using credit cards and maxing those out and then how much interest and like you never get anywhere with them anyway. And I think it's all about perspective and what the ultimate goal for that individual is. So sometimes you need to use the credit card versus, know, throwing that, that out of your, your debit card and directly from cash. Um, so I think that the other thing here too is, is it a stepping stone to where

mean, what is the real average that people truly pay off that 30 year mortgage from start to finish without ever altering that mortgage ever? So no refis, no cash outs, anything at all. I bet that's pretty damn slim for people to truly not adjust their mortgage from the very beginning. So if you look at that, if you adjust your mortgage,

you know, once or twice as far as like, you going to stretch it back out to the 30 or, know, there's options that you can do there. Are they already really hitting the 50 year mark or is it really the focus of the interest or is it really the focus of the equity? And I think that there's so many different variables depending on what the person needs to be able to do for right then and there. mean, it's going to make a few hundred dollar a month adjustment on your monthly.

But where is that going to get for that next one? But also that very well could be stretched out for the 15 can be an investment property depending on payment wise. And then now you're cashing out on the front end versus trying to cash out on the equity. I don't know. It's interesting to think about ⁓ America. We're sure debt happy on everything that we deal, but it's also wild to see.

realtors' opinions on these things. I watch a lot of the forums and that's why I don't want to judge too much off of my reading because it hasn't been from reliable sources, ⁓ opinions. But like, it's wild how quick people jump to the know and not understand the whole picture. I almost kind of want to say like, you know, in our market, we're primarily VA. We have a lot of service members.

But I know in a lot of different other areas, VA is not really well respected loan. It's actually kind of a negative thing in some of the markets that I've experienced and witnessed. So I think it's kind of the same thing. Could you do conventional? Sure. VA, you don't have anything down. So is that helping you versus the next one of the options of putting 20 % down? We don't know what that individual's...

financial portfolio looks like and it may be the best option for them to go VA or conventional or what other options are out there. So I think it's that negative condensation that instantly sparks off with people that kind of makes me a little weary of saying no right off the bat.

Ashley (05:44)
sure.

I think I saw a lender that said something about that it would also be for like lower credit scores. And their concern was that they would be more apt to let those houses go like into foreclosure because the likelihood of continuing is not great. I think though, in general, there's a ⁓ bigger problem than just the year of a mortgage, right? So interesting that we're talking about like

changing the mortgage to help affordability, but we're also still 5 million homes short. So we want to help everyone, we're still, there's a huge supply and demand issue, right? Which I feel like if we could maybe focused, like what are some initiatives that we could do as far as the supply? Like, right, keep on, and affordable is a blanket term because everyone uses affordability differently, but quote unquote affordable.

with sometimes we say for workforce entry type homes, like what initiatives could offset trying to do a 50 year mortgage versus trying to have some incentives like when we bought in 2008, I think there was a first time homebuyer credit, right? It was like, I think one year was a $15,000 credit and maybe the next year was a $7,500 closing or a credit. And to me like,

I guess that was like a little bit more skin in the game because yes, we got the $7,500 right away. And I mean, we didn't have a pot to piss in. So that helped us tremendously on our closing costs, et cetera. We still had to pay it back, right? So every year you had to pay $500 back. So I think it was a 15 year basically to the government and part of your taxes, you paid 500 back. didn't stay in the house for 15 years. then at year 10, when we sold, like we had to pay 3000 back to pay it off. I feel like.

that worked really well, like they got their money back in some fashion. Locally, like we have a down payment plus programs where people can get matching dollars. So I just feel like I don't know if like the 50 year mortgage is the answer to what the problems are. I feel like maybe if we were looking at other things, like how could we help people with a down payment? Did we also help people in general? Like there is no

I don't think there's good financial literacy. I don't think that in high school or college, like I know for a fact, like knowing what I know now, I wouldn't have made the same decision. So like, are there other things that we could be doing that would maybe help people not get into credit card debt or learn how to save or learn what a 20 % interest on your credit card does for your credit score when it's not paid on time? Just think that I do agree, right? Like things are...

not affordable for a lot of people. I understand the talk of a 50 year mortgage to try to make that happen. And even at 50, maybe 40, they go back to the 40 year route and that makes a little bit more reasonable for people. But I still think we have to look at the root of the problem, which is supply affordability of houses. I think the average sale price is different across the country, right? But I think across the US is it like 430 or something? There's a lot of people that cannot afford 430. What can we do to make

200,000 cottage homes, right? Like, what are those types of things that we could be doing? I think there's just more things we could be looking at than just the mortgage years.

Steven L. Burch (09:19)
Right. And maybe it's timing, whatever. But if the government is so worried about affordability and everything else, maybe you shouldn't shut down for 40 plus days. Like, let's start there. Let's start actually working for the American people instead of working for your own pocket and, ⁓ you know, shutting the entire. ⁓

workforce, the DOD and everything else underneath it. Like it's just wild to me. But I mean, you you look at it too, like I saw one of the arguments on one of the forums was talking about, you know, make houses more affordable. We'll sell like, I get that. That's our goal. But just because we say we want to make it more affordable does not mean that we can just automatically get the price and reduce the price just because a builder, you think a builder is making a ton of money.

Like there's a lot of things that go into that, you know, all the different supplies and everything else, like all the inflation and everything that we're experiencing drive that. And I mean, I don't know about in your guys' market, but like they're still building that is happening here. Don't get me wrong. But the builders that are building are building tons of spec homes versus, you know, one or two Z's like they used to because the profit margin is not quite there. You have to do

multiple different projects to be able to get that return on investment with your crew and everything else that you have coming through.

I wish that the economics of it was just a snap of the finger, make everything affordable and it automatically goes through, but that's not how the world works. That's not how business works. mean, I think that we have some people that don't understand the true ⁓ meaning and realization of what businesses go through, builders go through, et cetera, et cetera. ⁓ There's nothing there to bell us out. So why put ourselves in that type of position?

Ashley (11:15)
don't know how it would work, when I was like, think somebody was like, what's your solution to the problem? Which there were some interesting ones. But I kind of think about it with a student loan. Like, do you remember how there was like a graduated plan? Like when you first got out of college, you paid like whatever it was. And then like two years later graduated because your income was supposed to be going up with it. So I don't know, you know, is there some way that every two years, like, right, you can get to like figure out a rate or an interest rate like

because you're making more or things have changed. mean, like, there's just, it'd be interesting if there was a way to do something like instead of just a 50 year, like, is there a graduated plan that every five years that increase it, you know what I mean?

Steven L. Burch (11:56)
Yeah. Like an escalate.

mean, it's an escalation accelerated ⁓ type of thing that that's going to happen on the front end. I think that's super smart. ⁓ And then that kind of goes into, you know, I kind of go to like, why aren't we doing buy down points? Right. Like in the, I understand that we don't have the, you know, the capital or the cash or the buyer may not just be able to throw that down and buy down points.

But I think that there's other incentives or other benefits, other avenues that you can go through that it's just not the purchase price. And I think that that's what we're focusing on. And that's where I was trying to get all of it. The credit cards, like nobody's bitching about the 28 % or 21 % interest on credit cards. But here we are, we're talking about a 50 year loan over, you know, the 6%.

Like I understand that over 50 years, that's a long time, but there's no max. And to my understanding on our credit card, you may be having that thing for 50 years and you probably will be paying more interest than you would on a home. ⁓

Ashley (12:58)
Well, I think now with credit

card statements, I think it tells you, if you only pay the minimum, how long it'll actually take you. it's like, that might be. I mean, that is crazy to pay 28 % on something. And there are some people that, something medical might happen or whatever, and they get stuck and it's through no fault of their own. And their only option is to use the credit card. And then they're stuck forever because you have this 28%.

Steven L. Burch (13:25)
Right?

You know, and I also think that here too, like insurance, right? Like homeowners insurance will start there, but insurance, like it's going bonkers all over. Like it is wild how much, you know, homeowners insurance is, you know, actually like premiums are going up too.

People that are you know on the coast and everything. I mean, I'm hearing 12 15 20 thousand dollars for insurance because of obviously flooding and everything else but like Absolutely, like it doesn't make sense the formula for the mortgage is only Like as far as the the house itself is only a portion of what that monthly payment is taxes

Ashley (13:59)
the more than they're more good.

Steven L. Burch (14:13)
I know there's some states that provide a 100 % no personal property tax. If you're disabled military or retired military, I mean, there's different levels and whatnot. I think that there's things that you can do on that level as well that you can get subsidized on the back end from the state to the local entities. So I don't know. I get frustrated with watching and seeing some of these conversations and not...

looking at the full picture, just trying to hurry up and get that quick fix.

Ashley (14:47)
Well, I think like that's just it there. There is no current quick fix. mean, even even a 50 year mortgage isn't going to be a quick fix for everyone. Right. I mean, there's just not especially what depending on what people's long term goals are. mean, like, I think about here, we live in a medical community where a lot of people stay in their houses for maybe two to three years. Right. So they would probably be upside down at the time if they did a 50 year mortgage. You know, so I think

Obviously, it's a case by case matter. But I think like as a society, we have to figure out other supply issues, other, you know, down payment plus type things. know a town, this is super interesting to me, a town near us. It's like, maybe five of their larger employers put money into this pot. And then if you're an employee at one of those ⁓ five employers, you can request a

down payment assistance and the goal is to get you to live within that city. So if you live within the city limits and you work on theirs, like you can apply to get like $10,000 towards your down payment and then you have to stay with that company for like five years or something like that. But what a great way to have like the employer's dollars being used within their own city and to help their own employees to not, you know, to have money down. So think like finding more creative avenues as to just helping the

Cost of entry, if you will, come down.

Steven L. Burch (16:14)
Well, even think of it like, guess my mind automatically went to single family residence. But I mean, look at it from if you've got a duplex or, you know, fourplex and maybe the incentive is to be able to, over a 50 year span for a fourplex or for a multi-unit type of thing. Like, and then you get people in your property to offset the difference and whatnot.

I think that there's way to build inside of that over the 50, but I do agree that has to be strategic in some parameters that are set forth, not just handing out 50, your mortgages left and right, and that's gonna fix everything. I think it goes back to your point of education. I think that there has to be a education plan pathway.

to be able to get them from the point of entry, like you said, to what is your end goal? And I think that's the difference of working, you know, with financial advisors or somebody, you know, the lender or whomever else to be able to help you see those pathways and create those so that it aligns with what your end outcome is versus just going with that sole one decision that could honestly affect the rest of your years. Yeah.

Ashley (17:25)
Yeah, sounds lucrative, but it does it, you know,

and I mean, it's not to say even just in the current market that we're in, there are people that maybe shouldn't be getting loans, right? I mean, it takes us back to 2008 and people, you know, got loans they shouldn't have and we ended up in really bad situations. I think again, it's just everyone kind of playing their piece as your realtor, as your

lender as your local legislation, like what can everyone do together to keep people educated and to make sure that they know their options. And sure, if you come in under a 50 year rate, I mean, you don't have to stay like that forever, but maybe there's a specific graduated plan that we're going to lower that entry so you can get in on a 50 year, but our goal is that you need to refinance in five years.

Steven L. Burch (18:09)
I mean, it's almost like an arm, right? Like do an arm and then be able to every five years then see where your interest rate is. And it stacks that way as well too. So yeah, I'm maybe really intrigued to see what happens here in the near future of ⁓ not only with the mortgage, but what's going to happen with the government and all the craziness that is happening with the world on that side of things. I hope that we're going to see some positive outcomes for sure. I'm to be a little optimistic with it. I would love that.

But also I'm not gonna hold my breath and just wait and hope for somebody else to have that benefit for us. Well, great talk. ⁓ I'm sure we'll be back on this topic because there's gonna be more to come with it. So tune in next time. Thanks for listening.

Ashley (18:46)
Exactly.