Mortgage Brokers Skeptical About Use of 50-Year Home Loans
As the market shifts toward buyers and brokers try to placate those from all income brackets, various home loan products are thrust into the mainstream.
With that in mind, the 50-year mortgage, one of the last frontiers of everyone-can-buy-a-home financing, has arrived.
However, this doesn’t mean the option is popular or even slightly in demand. Lenders around Phoenix, mortgage brokers and Realtors say they’ve fielded no requests for the option, which proffers lower monthly payments at the expense of slower equity-building.
Amy Frantii of U.S. Bancorp said the bank’s home mortgage division doesn’t even provide 50-year mortgages in Arizona or elsewhere.
“[Mortgage rates] go up from a 15-year mortgage to a 30- or 40-year mortgage, so that would negate the benefits of reduced payments,” she said.
Tim Disbrow, Phoenix-based regional sales manager for Wells Fargo Home Mortgage in Arizona and New Mexico, said the bank nationwide currently is not offering 50-year loans.
In July, Wells Fargo announced it was offering 40-year mortgage loans.
“The 40-year term may be appealing to first-time home buyers, consumers in high-cost markets, real estate investors and buyers on fixed incomes,” Disbrow said. “By spreading mortgage payments over 40 years, borrowers will have lower monthly payments.
“We believe the 40-year loan adequately addresses the needs of consumers living in higher priced markets who desire a lower monthly payment without the ‘payment shock’ associated with interest-only or payment-option loans,” Disbrow said.
The 50-year option seems to be, for now, a California phenomenon.
In the California housing market … Statewide Bancorp, of Rancho Cucamonga, Calif., has received attention for its half-century mortgages; a handful of other banks in the Golden State are offering 45-year mortgages.
Bankers and real estate experts agree with Steve Kirsop, a Portland-based vice president for Eugene-based LibertyBank. Kirsop said he simply doesn’t think the loans will attract consumers.
“Seems like it’s just a marketing ploy to get some (mortgage provider’s) name out there,” he said.
The idea is that borrowers could become attracted to the lower monthly payments that 50-year terms offer. The lower payments ostensibly could entice more home buyers to enter the currently weak housing market.
“The underlying theme is, people want a lifestyle now and even though people are locking into 30-year mortgages, they move an average of every seven years,” said Muffie Scanlan, a real estate agent with Windermere’s Northwest Portland office. “It could mean people get into properties they wouldn’t otherwise get into because their payments are so high.”
Still, Scanlan has not had any clients query as to whether they should seek a 50-year mortgage. Moreover, figures calculated by Eric Croll, a mortgage lender with Northwest Mortgage Group Inc., of Portland, demonstrate that the payments aren’t much lower than for a 40-year or even a 30-year term.
Example of home loan payments: For a $300,000 house with a 30-year fixed-rate mortgage, the 6.375 percent rate requires a monthly payment of $1,871.61. The same house with a 40-year mortgage would require $1,188.77 a month, assuming the rate is a quarter-point higher.
With a 50-year mortgage, having added another quarter-point of interest, the payment would be $1,184.28. If only one-eighth of a point is added, the payment comes to $1,165.25.
The difference between a 40-year and a 50-year is therefore minimal.
“Which is why I’m still seeing a lot of 30-year fixed with a 10-year interest-only period,” said Croll. “So I haven’t looked at these much. Nothing against them, but the numbers I’ve seen don’t pencil out.”
Lenders also say the loans, by severely limiting buyers’ ability to build equity in their homes, don’t actually help the buyers.
Even interest-only loans, which allow home buyers to pay only the interest before the loan converts to an adjustable-rate mortgage, at least offer the ability to begin greatly paying down the principal after a few years.