In today’s post, I want to talk while I believe we are going to see more 40 and even 50-year mortgages in the near future and I’m going to explain why this is bad.
So just to give some background right now. 40-year mortgages are not considered qualified mortgages. 30 years is the longest qualified mortgage. A qualified mortgage in a nutshell are mortgages that essentially follow a set of lender compliance rules from the Consumer Financial Protection Bureau (CFPB). And one thing to note too about 40-year mortgages are that they are also used for loan modifications too, if a borrower is having trouble paying their mortgage back.
My prediction from these developments is that we are going to begin to see more 40 year and even 50-year mortgages. In fact, I think in 10 or 20 years we may even look back and be surprised how no one got 40-year mortgages. Let me elaborate on why I believe this will happen.
First, is that both the Fed govt and the Banks benefit tremendously from this. For one, the consumer is kept in debt longer and deeper. This means more interest to be collected from the banks and at a higher rate. The govt will like this too, because more people will be able to afford homes. And this pretty much ensures there won’t be any sort of housing crash that will be needed to bring home prices down. We’re already seeing the housing market has an artificial supply problem, but the truth on this is that nobody is looking to move because people can’t afford the home prices now, especially with the higher mortgage rates.
The solution to all this is going to be longer debt terms.
Now obviously the big loser in this is the consumer. They will be forced to pay mortgages for longer and be in debt longer. With 40-year mortgages it’s pretty much the same as renting. But, maybe that’s what the goal is.
