[HN Gopher] The existence of the 50-year mortgage shows lenders ...
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The existence of the 50-year mortgage shows lenders are desperate
Author : benrmatthews
Score : 19 points
Date : 2022-08-19 19:59 UTC (3 hours ago)
(HTM) web link (www.newstatesman.com)
(TXT) w3m dump (www.newstatesman.com)
| ralusek wrote:
| I think access to debt unlocks the true value of a thing. You
| tell me what this is worth without constraining it to what you
| have in your pocket.
|
| However, what things like housing and medicine have shown us are
| that wholly free markets aren't very good with things that people
| place nearly infinite value on. My life saving surgery will cost
| me 10 million dollars? Okay, where do I sign. That number might
| as well be a billion dollars as long as you're giving it to me.
| Housing is not too dissimilar. A thirty year mortgage is already
| in comical territory, it's already functionally synonymous with
| "a lifetime."
| 1randomuser wrote:
| bediger4000 wrote:
| The author's point is that a 50-year mortgage is a bad deal
| because almost nobody has a 50-year working lifetime to pay for
| it, and besides the interest over that time span is absurd.
|
| But let's think instead of who a 50-year mortgage is bad for:
| someone who can't quite currently afford a house. Who is a
| 50-year mortgage good for (bearing in mind this is a UK thing):
| anyone in the business of lending.
|
| It's a done deal that these will become a commonly done way to
| buy a house.
| chadash wrote:
| I don't think this is quite right. If the interest rates are
| low enough, even the most financially savvy people will take
| this deal. For example, I have a friend who can easily afford
| to pay cash on a $1 million house, but he has a 30 year
| mortgage. Why? Because his mortgage rate is 2.5%. He can take
| his money and put it into Stocks or other investments and get a
| much better return than 2.5%. If he were truly risk-averse, he
| can even put the money in long term treasuries and make more
| than 2.5. At low enough rates, it always pays to have a loan.
| It's (almost) free money.
|
| Edit: at current interest rates this advice makes less sense,
| but even so, it could pay in some situations. For example maybe
| your mortgage is 4.5% but your student loans are 7.5%. Take the
| mortgage and pay down those loans. Obviously too much debt is
| bad, but not all debt.
| psychphysic wrote:
| It begs the question why don't banks do that instead of
| lending it?
|
| Well because the bank never had the money they lent you.
| Central banks let retail banks invent money for the loans[0].
| Then incentives then to meet some thresholds on
| "affordability tests". If they do that loan doesn't use up as
| much liquidity as it's face value.
|
| The net effect? You pay your bank interest on money that cost
| (used bank resources) less that the face value.
|
| [0] https://www.bankofengland.co.uk/-/media/boe/files/quarter
| ly-...
| rogerkirkness wrote:
| These or even longer ones are common in various places.
| UncleEntity wrote:
| It depends.
|
| Nobody says you have to make the minimum payment every month
| and you're buying with today's dollars, err...pounds, but
| paying with future less valuable money. Pay a little extra in
| the good times but have a lower minimum payment for when money
| gets a little tight.
| alexfromapex wrote:
| I think civilization needs to take a step back and reflect on why
| we're making debt/credit a necessity to have basic needs like
| shelter.
|
| Also, why are governments not creating sensible upper limits on
| lending and interest rates? For instance, if I can afford to
| purchase the raw materials and build a house myself in 10 years
| with my own two hands, assuming I'm not working a job, then why
| is a bank allowed to extend interest over 5 times that timespan
| and make me pay e.g. 1000% of the raw materials price in profit
| to them? They are preying on peoples' basic need to have a roof
| over their head.
| __pache__ wrote:
| ...because not everyone has cash to buy the largest investment
| of their life...?
|
| loans/credit are very useful...
|
| profit is great, as long as there's competition, right?
| throwaway_4ever wrote:
| > the largest investment of their life
|
| That's the problem. Housing has been regulatory captured.
| Abundant housing contruction due to a free market would allow
| people to live in dwellings at a slim margin above mass
| construction.
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