Comment by GenerWork
3 months ago
You could make an argument that for the investment savvy, this is a great move. Say a 30Y payment is $1000/mo. A 50Y payment may be $800/mo. Put the difference ($200/mo) into something like SPY, and in 5 to 10 years, you'll have a small chunk of change that you could tap into.
I doubt many people, if any, will do this though.
> Say a 30Y payment is $1000/mo. A 50Y payment may be $800/mo.
Maybe? At present the 15-year fixed is at 5.57% and the 30-year is at 6.15%. It's impossible to predict what a 50-year mortgage would cost since we don't know what the government will throw at it or what goofily-named government-sponsored enterprises would be created to buy these mortgages, but... more. The tools banks use to measure the risk of a mortgage right now don't even apply if the common situation becomes that the house and the owner are likely to age out into decrepitude during the life of the loan.
If the 50-year becomes a real thing we can use the government to backstop all this and provide financial support when all the obvious things go wrong (at enormous taxpayer expense). Might as well, we provide a lot of stuff to keep the 30-year going, which is definitely not a loan that would exist otherwise. It's unwise to pretend that this is all a perpetual motion machine that's only going to make itself stronger over time if we use it cleverly.
I've heard a few people making this argument, but unless it allows you to pay off your mortgage 20 years early it's still a net loss.
The excess return from investing the difference can be seen as the premium for the extra risk compared to paying down the principle. What makes sense for a person has to be evaluated in that light, and that the utility of money is not linear. I think a lot of people are willing to exchange a little upside to counter possibility of being unable to make their mortgage payments.
The deltas in monthly payments aren't typically that large.
If rates are 6%, it takes wayyyy longer than 5-10 years to earn more than that on average.
Always goes up is not the usual.
SPY only ever goes up so this is a great plan!
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That's a generous payment estimate. The actual numbers at the current 6.5% are that a $2700 30Y will be a $2450 50Y. It's not a 20% decrease in mortgage payments. It's more like 9%.
And uhhh, there's the small matter of "what you're putting in SPY" being rather offset by the $1M+ extra in payments and interest over the life of the loan.
The only people this benefit, truly, are lenders.