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It’s 2012, prices are down and interest rates are at historic lows. So why in the world are we still writing 30 year mortgages?
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22 Comments on The quickest way out of the housing crunch: Stop writing 30 year mortgages!
Good morning Richard,
Excellent post. Most have become so used to the 30 year note, that they do not even consider a 15 year and the benefits that it provides. At today's current interest rates and market climate, it makes more sense to build equity as quickly as possible.
Richard: Interesting post- I'm backing Doug up again this morning, but I agree that the other alternative is to require more cash down. Thanks for sharing!
Good morning, Richard.... buying "less house" will take most out of the market..... people are spoiled and most feel they're deserving!!
I tend to agree with you. The best decision I made when I bought investment properties which I have financed is to have them on 15 year notes. Now that I am in year 11, I am really looking forward to 2016, plus the equity is wonderful.
Cal
30 year loans allow "more" purchase but perhaps a 15 year loan with an equity build up would lead to more activity as buyers move up later.
I think 15 year mortgage would be great for either someone who doesn't want a lot of house or someone who doesn't plan on keeping their house for not a very long time. But like Barbara said " People are spoiled and most feel they're deserving.
One contributing factor to the housing problem in California were the crazy 50 year mortgages they were giving out during the silly lending if you fog a mirror days. The thinking was to lower the monthly obligation so buyers could afford the high cost of homes. I stick with the thinking if you can't afford it with financial prudence then you need to lower you ceiling and make smart decisions. We refinanced our home last year on a 10 year mortgage .. I think I will actually live to pay that off and enjoy some no mortgage days.
Doug...
There isn't a lot of difference in the payment amount between 6.25% at 25 years and 3.25% at 15 years ... and the equity difference after the first ten years of payments is not even comparable!
Interestingly enough, with interest rates this low the difference between the payment amount of a 30 year loan V. the 15 year loan is quite significant. But the difference is essentially a forced principle payment. Thanks for mulling ot over and joining in!
Marcia...
Now should we think about this ... if our buyers are that "close" and we are in a declining market is it really a good idea for them to be buying in the first place? It's their call at the end of the day but the chance of them being upside down in the future is a strong possibility.
Lisa...
That is is exactly what I am saying. There race to stay ahead of the declining market takes discipline and stamina. Thanks so much.
Andrew...
I'm not comparing 2012 to 1965. I'm comparing it to 2006 when the average payment for the same property was indeed higher on a 30 year mortgage (Price and interest) than it is today for the SAME property on a 15 year loan. THX.
Barbara...
But they will also walk away from a mortgage if the are upside-down. What I am saying is one of the best ways to eliminate the negative equity dilemma is to force faster principle payment. THX my friend.
For example, the house in the photo originally sold in the $130's. We sold it last year for $52K.
I know I refi'ed into one last year, but I have alot of clients who still prefer doing the 30 yr and just paying more off to get a lower payment....good point though and I agree!
Richard, i do think that you present options in mortgages that need to be explored...i try to suggest to buyers to buy below their means & they will not...
The mentality that we will always have a house payment is one that needs to be changed. I have a friend that had paid for 10 years on his 30 year loan. He re-fi'd and got his lower interest and payment but went back to a 30 year loan. He had no problem paying the previous payments, but he said now he has more money to play with and claims that he is not investing the extra cash.
Interesting post. I think buying less house will take many if not most buyers out of owning a home. I always like a shorter term but people still have kids to raise, medical, all other living expenses to pay putting a strain on sticking to a 15 year plan.
Hmmmm...very interesting idea. Sounds like a sure fix, but then again, I would have to agree with others here that the most of the buyers I work with probably couldn't handle the 15-year.
Richard,
Quite a concept, and I do believe that it could help moving forward. Tough sell since the 30 year fixed is so embedded into our culture.
Rich
I like this idea. The issue though it that higher prices require longer payments for people to afford them. If we could reset people's expectations, then I think this would work well.
This is a very good point. I feel that the problem is people basing their home price tag on the amount of a monthy mortgage. That is so wrong. That is part of the reason we got into the problem we are currently in. It got to the point of someone wanting a $1000.00 monthly payment but didn't like the houses in that price range, so the mortgage broker just changed the program to a different vehicle, so they kept their $1000.00 payment, but now they can afford a more expensive house. If that didn't work, let's just bump up to an interest only loan!!!
I'm doing what I can. I'm refinancing my house on a 15 year note this month...