5 ms·

> Too long mortgages (100 years or more) means nominal prices are high which add to the risk That is absolutely bananas. Almost like a Chinese-style 99 year le

> Too long mortgages (100 years or more) means nominal prices are high which add to the risk That is absolutely bananas. Almost like a Chinese-style 99 year lease. Your kids might be dead by the time it's paid off, you'll never own it. Edit: apparently the AVERAGE mortgage term is 140 years! Just recently the Swedish government limited the maximum mortgage term to 105 years. That is some absolutely stupid policy.

opportune 9y ago
As an American I am absolutely shocked anybody thought that was a good idea. If an average person making $50k/year finds it affordable to pay $1200/month on housing, they're just going to shop for a house that will yield that desired monthly payment. When interest rates are low, how is this not a recipe for runaway housing costs? What's worse is that this is actually a huge subsidy for landlords, unless their mortgage terms are limited to be much shorter. A landlord can afford the downpayment to finance many homes at low interest rates, whereas a poorer person may be able to make the payments on such a mortgage, but can't save up enough to afford a down payment.
- njarboe 9y ago
  "shocked"; a bit of sarcasm perhaps? A 30 year loan is not much different really. Too long. It was rare in the US before various government subsidies and encouragements. First, Fannie Mae (1938), securitizing FHA backed home mortgages. Next, Freddie Mac (1970), securitizing home loans not backed by the US government.
  - opportune 9y ago
    Shocked because it seems obvious to me that this would have undesirable effects down the road. It also funnels even more money into banks because the net effect is that homeowners are essentially renting from banks for most of their lives until they get a significant windfall. In the US, we saw what happens when you make getting a mortgage "easy". People bought more house than they could afford and got screwed.
moduspol 9y ago
Wow. And I've seen people here (justifiably) roll their eyes over 6 and 7 year auto loans. A 140 year mortgage can't possibly be appreciably different from renting.
- alkonaut 9y ago
  > A 140 year mortgage can't possibly be appreciably different from renting. The fact that as a homeowner ("owner") you can deduct interest rates, means that by "renting from the bank" you have a 30% rebate compared to renting from a landlord, and obviously you have no landlord taking a cut on top of that. So apart from the risk of depreciation, people seem to have little interest in owning their homes outright. So people pay off quickly in the beginning to get some margin on their valuation, but after that when the loan is e.g. 50% of the valuation, people might prefer buying a car to paying off $10k per year on their home. And it's probably better to have a mortgage fixed at 50% forever with 2-3% interest rate, and avoid the car loan with 5% interest.
  - votepaunchy 9y ago
    The landlord is also getting the “30% rebate” by claiming interest as a business expense to offset rent revenue.
    - marvin 9y ago
      Yes, but landlords also pay taxes on profits. As a homeowner, you won't pay tax on the difference between rental cost and your mortgage interest payment.
      - kgwgk 9y ago
        In some countries you get taxed on the imputed rent (the amount of rent that you would be paying gets added to your taxable income). https://economix.blogs.nytimes.com/2013/09/03/taxing-homeowners-as-if-they-were-landlords/ https://economix.blogs.nytimes.com/2013/09/03/taxing-homeown...
alkonaut 9y ago
> Your kids might be dead by the time it's paid off, you'll never own it. Exactly right. I don't know anyone who buys with the intention to own. Effectively you rent it from the bank. I don't mind, I mean I don't mind renting from the bank. I pay off my mortgage (2% per year, so 50 years) but only as long as its reasonably high, in order to lower interest rate costs and reduce the risk of being under water. I have no interest in paying it off completely, so I'll stop paying 2% per year when the mortgage is down to e.g. 40% of the value. Obviosly as a banks have zero interest in your customers loans shrinking, it's lost revenue! The big downside of very long mortgages is that it brings up nominal prices, and thus the volatility
mhandley 9y ago
In the UK, around a fifth of mortgages are interest-only, which I guess is effectively an infinite-term mortgage. In comparison, at least you're paying some part of the capital back on a 100 year mortgage. Of course, both are storing up trouble for the future. https://www.ft.com/content/4e0377e6-6ad4-11e7-bfeb-33fe0c5b7eaa https://www.ft.com/content/4e0377e6-6ad4-11e7-bfeb-33fe0c5b7...
- manarth 9y ago
  Does the FT article give any details of how that fifth is broken down? I suspect they'd be predominantly buy-to-let; my understanding is that there are significant barriers to getting an interest-only residential mortgage.
- charlesdm 9y ago
  If you're getting an interest only mortgage, at least you know what you're getting into. They're great for investment properties and other investments, not so much for your main residence. Then again, there is the problem of refinancing when the end date comes due, which is probably why you have 100+ years mortgages in Sweden.
- awjr 9y ago
  I would agree that my interest only mortgage is storing up trouble for my future. However given I bought my 1st house in 1996 with no deposit, the reality is that interest only has worked well given that I have leveraged the housing market over 20 years and have now have a mortgage that is around 40% of the value of the house and is probably enough to move somewhere significantly less expensive and retire. However I recognise that my gain is also a problem for my teenage daughter who will struggle immensely to get on the housing ladder. In the UK, it really does not help that housing is considered an investment opportunity. I have a feeling rent control is the only way we will ever get to the point where we remove this 'investment' opportunity. More interestingly, it's within landlord's interest to work with developers to ensure whole developments are primarily bought up by landlords to maintain the value of housing stock.
  - conanbatt 9y ago
alkonaut 9y ago
> Just recently the Swedish government limited the maximum mortgage term to 105 years. That is some absolutely stupid policy. It is a bad situation. But on the other hand you can't just change the max mortgage to 30 years either, or remove the interest tax deduction over night, as that would immediately create the problem you were trying to avoid to begin with (an unstable housing market). I think what they are doing to mortgage lengths is entirely sensible now: they are increasing the required down payments (effectively 25% now) and then requiring a higher pace of repayment initially. That's when it really matters to stability. E.g. if people pay off 3%/year for the first 10 years of their mortgage, it doesn't really matter whether they have a 30, 40 or 100 year mortgage. They will have paid it down to around half the valuation which lowers the risk.

opportune 9y ago

As an American I am absolutely shocked anybody thought that was a good idea. If an average person making $50k/year finds it affordable to pay $1200/month on housing, they're just going to shop for a house that will yield that desired monthly payment. When interest rates are low, how is this not a recipe for runaway housing costs? What's worse is that this is actually a huge subsidy for landlords, unless their mortgage terms are limited to be much shorter. A landlord can afford the downpayment to finance many homes at low interest rates, whereas a poorer person may be able to make the payments on such a mortgage, but can't save up enough to afford a down payment.

njarboe 9y ago
"shocked"; a bit of sarcasm perhaps? A 30 year loan is not much different really. Too long. It was rare in the US before various government subsidies and encouragements. First, Fannie Mae (1938), securitizing FHA backed home mortgages. Next, Freddie Mac (1970), securitizing home loans not backed by the US government.
- opportune 9y ago
  Shocked because it seems obvious to me that this would have undesirable effects down the road. It also funnels even more money into banks because the net effect is that homeowners are essentially renting from banks for most of their lives until they get a significant windfall. In the US, we saw what happens when you make getting a mortgage "easy". People bought more house than they could afford and got screwed.

moduspol 9y ago

Wow. And I've seen people here (justifiably) roll their eyes over 6 and 7 year auto loans. A 140 year mortgage can't possibly be appreciably different from renting.

alkonaut 9y ago
> A 140 year mortgage can't possibly be appreciably different from renting. The fact that as a homeowner ("owner") you can deduct interest rates, means that by "renting from the bank" you have a 30% rebate compared to renting from a landlord, and obviously you have no landlord taking a cut on top of that. So apart from the risk of depreciation, people seem to have little interest in owning their homes outright. So people pay off quickly in the beginning to get some margin on their valuation, but after that when the loan is e.g. 50% of the valuation, people might prefer buying a car to paying off $10k per year on their home. And it's probably better to have a mortgage fixed at 50% forever with 2-3% interest rate, and avoid the car loan with 5% interest.
- votepaunchy 9y ago
  The landlord is also getting the “30% rebate” by claiming interest as a business expense to offset rent revenue.
  - marvin 9y ago
    Yes, but landlords also pay taxes on profits. As a homeowner, you won't pay tax on the difference between rental cost and your mortgage interest payment.
    - kgwgk 9y ago
      In some countries you get taxed on the imputed rent (the amount of rent that you would be paying gets added to your taxable income). https://economix.blogs.nytimes.com/2013/09/03/taxing-homeowners-as-if-they-were-landlords/ https://economix.blogs.nytimes.com/2013/09/03/taxing-homeown...

alkonaut 9y ago

> Your kids might be dead by the time it's paid off, you'll never own it. Exactly right. I don't know anyone who buys with the intention to own. Effectively you rent it from the bank. I don't mind, I mean I don't mind renting from the bank. I pay off my mortgage (2% per year, so 50 years) but only as long as its reasonably high, in order to lower interest rate costs and reduce the risk of being under water. I have no interest in paying it off completely, so I'll stop paying 2% per year when the mortgage is down to e.g. 40% of the value. Obviosly as a banks have zero interest in your customers loans shrinking, it's lost revenue! The big downside of very long mortgages is that it brings up nominal prices, and thus the volatility

mhandley 9y ago

In the UK, around a fifth of mortgages are interest-only, which I guess is effectively an infinite-term mortgage. In comparison, at least you're paying some part of the capital back on a 100 year mortgage. Of course, both are storing up trouble for the future. https://www.ft.com/content/4e0377e6-6ad4-11e7-bfeb-33fe0c5b7eaa https://www.ft.com/content/4e0377e6-6ad4-11e7-bfeb-33fe0c5b7...

manarth 9y ago
Does the FT article give any details of how that fifth is broken down? I suspect they'd be predominantly buy-to-let; my understanding is that there are significant barriers to getting an interest-only residential mortgage.
charlesdm 9y ago
If you're getting an interest only mortgage, at least you know what you're getting into. They're great for investment properties and other investments, not so much for your main residence. Then again, there is the problem of refinancing when the end date comes due, which is probably why you have 100+ years mortgages in Sweden.
awjr 9y ago
I would agree that my interest only mortgage is storing up trouble for my future. However given I bought my 1st house in 1996 with no deposit, the reality is that interest only has worked well given that I have leveraged the housing market over 20 years and have now have a mortgage that is around 40% of the value of the house and is probably enough to move somewhere significantly less expensive and retire. However I recognise that my gain is also a problem for my teenage daughter who will struggle immensely to get on the housing ladder. In the UK, it really does not help that housing is considered an investment opportunity. I have a feeling rent control is the only way we will ever get to the point where we remove this 'investment' opportunity. More interestingly, it's within landlord's interest to work with developers to ensure whole developments are primarily bought up by landlords to maintain the value of housing stock.
- conanbatt 9y ago

alkonaut 9y ago

> Just recently the Swedish government limited the maximum mortgage term to 105 years. That is some absolutely stupid policy. It is a bad situation. But on the other hand you can't just change the max mortgage to 30 years either, or remove the interest tax deduction over night, as that would immediately create the problem you were trying to avoid to begin with (an unstable housing market). I think what they are doing to mortgage lengths is entirely sensible now: they are increasing the required down payments (effectively 25% now) and then requiring a higher pace of repayment initially. That's when it really matters to stability. E.g. if people pay off 3%/year for the first 10 years of their mortgage, it doesn't really matter whether they have a 30, 40 or 100 year mortgage. They will have paid it down to around half the valuation which lowers the risk.