Post by T-Rex91 on Feb 11, 2010 15:37:12 GMT -5
Should the ARM and other exotic home financing options be banned? I read this article today that said that 50 year mortgages are available. I personally think this is akin to Benz' 84 month financing option (you'll always be upside down in either scenario) but let's discuss.
ARM's are the most common "exotic" financing option. ARM's have been available since 1982. Before that, if you didn't have 20% to put down and got a 30 year fixed, you didn't own a home. That simple. Since then, ARM's have become but one option - there are piggybacks, reverse mortgages, extended term mortgages, etc. Clearly the range of options is driven by capitalism and desire to make home ownership available to a larger segment of the population.
Owning a home is touted as the American dream. Should there be a financing option to make it viable for everybody or should we go back to the 20% down/fixed note model?
A recent report in USA Today, shows that a handful of lenders have started offering 50-year adjustable-rate mortgages to buyers who need to have a low monthly payment.
Many banks offer 40-year mortgages, which make up 5% of all home loans in the U.S.
"One of the biggest things in California is the high cost of homes. With rates going up, there's demand from customers for longer loans," said Alex Diaz Jr., with Statewide Bancorp in California.
Diaz continued to say that Statewide has already received around 220 applications since introducing a 50-year mortgage in March.
The 50-year mortgage is an indication that the cooling real estate market is causing more competition between lenders.
"Mortgage lenders are getting craftier to get the attention of consumers," Anthony Hsieh of LendingTree told USA Today.
Fifty-year mortgages come with some risk attached. A borrower with a longer than average mortgage begins building equity at a slower rate. Because most fifty-year mortgages are adjustable-rate, the low rates could rise given time.
Mortgage experts caution that the 50-year mortgage is best-suited for homeowners who plan to sell the home after five years, before the interest rate adjusts.
"If you are going to be there for more than five years, you're gambling," said Marc Savitt of the consumer protection committee of the National Association of Mortgage Brokers. "You don't know what interest rates are going to be. I wouldn't do it."
ARM's are the most common "exotic" financing option. ARM's have been available since 1982. Before that, if you didn't have 20% to put down and got a 30 year fixed, you didn't own a home. That simple. Since then, ARM's have become but one option - there are piggybacks, reverse mortgages, extended term mortgages, etc. Clearly the range of options is driven by capitalism and desire to make home ownership available to a larger segment of the population.
Owning a home is touted as the American dream. Should there be a financing option to make it viable for everybody or should we go back to the 20% down/fixed note model?
A recent report in USA Today, shows that a handful of lenders have started offering 50-year adjustable-rate mortgages to buyers who need to have a low monthly payment.
Many banks offer 40-year mortgages, which make up 5% of all home loans in the U.S.
"One of the biggest things in California is the high cost of homes. With rates going up, there's demand from customers for longer loans," said Alex Diaz Jr., with Statewide Bancorp in California.
Diaz continued to say that Statewide has already received around 220 applications since introducing a 50-year mortgage in March.
The 50-year mortgage is an indication that the cooling real estate market is causing more competition between lenders.
"Mortgage lenders are getting craftier to get the attention of consumers," Anthony Hsieh of LendingTree told USA Today.
Fifty-year mortgages come with some risk attached. A borrower with a longer than average mortgage begins building equity at a slower rate. Because most fifty-year mortgages are adjustable-rate, the low rates could rise given time.
Mortgage experts caution that the 50-year mortgage is best-suited for homeowners who plan to sell the home after five years, before the interest rate adjusts.
"If you are going to be there for more than five years, you're gambling," said Marc Savitt of the consumer protection committee of the National Association of Mortgage Brokers. "You don't know what interest rates are going to be. I wouldn't do it."
