Why, You Can Hardly Afford NOT To!

Uncle AndrewUncle Andrew
Filed under: @ 6:10 pm

Perhaps you heard about this: lending institutions are considering making 50-year mortgages available to prospective home buyers.

Let’s just quickly run through this, shall we? A hopeful homeowner-to-be wants to jump on the landed-gentry bandwagon, but can’t quite manage the payments. At 6.5% interest, a $100,000 house will require monthly payments of $632.07 over a period of 30 years, for a total payout of $227,545.20. By extending the mortgage to 50 years, that same house will require monthly payments of $563.72, for a grand total of $338,232.00.

So, in order to shave approximately 70 dollars off the monthly payment, this chump is going to add 20 years and over a hundred thousand dollars to the cost of the house?

Here’s a little tip you can take to your next meeting with your lender: if 75 bucks a month can make or break your home loan, you’re shopping for homes outside of your price range.

I find it exceptionally ironic that this move is being considered at the same time that a major mortgage lender, Ameriquest, is finalizing a settlement with 49 states regarding deceptive lending practices, practices that included using pressure tactics to convince people to sign up for mortgages beyond their means.

I’m reminded of how careless average Americans must be with their money every time I go to a store selling anything more expensive than a large pizza. Nearly every big-ticket item we have purchased in the last five years—from televisions to computers to hot tubs—we purchased via interest-free payments over a year or more. Only the purchases of my car and our house required the payment of any interest. This is, in a word, insane. Can you even fathom how many people must default on these no-interest deals, failing to pay off the loan before the expiration of the promotional period and the retroactive application of crushing interest rates, to make this sort of offer commercially feasible, let alone profitable? The numbers must be staggering. An appreciable segment of the US economy must be fueled by the choices of financially irresponsible and/or desperate people.

And while there might be room in a given person’s sound financial strategy for arranging for a 50-year mortgae (refinancing, anticipating a quick resale, etc.), these extra-long-term loans are marketed primarily in the “sub-prime” category; people with limited means or bad credit, who are the least likely to be in a position to affect any of these strategies.

Honestly, I don’t know who to be more annoyed with: lenders who viciously take advantage of stupid people, or people stupid enough to be taken in by such transparently ill-advised gambits.

Think I’ll play it safe and be annoyed with everybody.

All portions of this site are © Andrew Lenzer, all rights reserved, unless otherwise noted.