New 15-Year Mortgage May Open Homeownership Door For More Buyers

[Sherman A1]

The 30-year mortgage is the foundation of the real estate market largely because it makes housing more affordable. But the truth is, it's a lousy loan for building actual ownership or equity in your home during the first 5 or 7 years, which caused big trouble when housing crashed.

But there's something new that's getting a lot of attention. It's called the Wealth Building Home Loan because it helps people own more of their house more quickly. A pilot project is already up and running to offer this new type of affordable 15-year loan to thousands of homeowners. And perhaps the most amazing thing is...

Created In A Partnership Between A Liberal And A Conservative

In the liberal corner, we have Bruce Marks, and you don't get much more liberal than that. Marks runs a housing nonprofit and calls himself a quote "nonviolent bank terrorist." He's marched with hundreds of homeowners onto bank CEOs' front lawns to protest foreclosures, and he likes to go on Fox News and get into yelling matches with conservatives.

But a few months ago, Marks was speaking at a conference. So was Edward Pinto, an economist from the decidedly conservative American Enterprise Institute. Pinto says it was, "a conference on 'the color of wealth' and it was all about the fact that people of color have been slammed in terms of wealth building by what's been going on in the housing market."

http://news.stlpublicradio.org/post/new-15-year-mortgage-may-open-homeownership-door-more-buyers

[hollysmom]

1. I don't know how many will be able to afford it.

I bought this house with a 20 year mortgage. Paid it off early with a loan from my mother when I got divorced. I always paid my Mother right back, though. I didn't want to have to renegotiate the mortgage with the house transfer to me. She loaned me their life savings, but I paid her back as soon as I could and took care of her and before that my father, making a lot of their financial and doing their taxes, etc, until both died and then I took care of the cats until I could place them with new owners (they scared my big dog).

[Sherman A1]

2. Granted

every case is different, but I thought the piece brought some interesting information. Also the collaboration efforts mentioned were a positive.

[merrily]

3. It may be a home equity building loan, but it's not a wealth building loan.

In fact, it's not a home equity building loan, either. The only one building equity in the home is the person paying the mortgage.

Absent a loan from your mom or some such, the only people for whom mortgages build wealth are the lenders/mortgagees, not the borrowers/mortgagors.

15 year variables have been available for a long time, if you could afford the larger monthly payment and bear the uncertainty of fluctuating interest rates.

BTW, the first 5-7 years of a 15 year loan is near the mid point of the life of the loan. Near the 15 year point of a conventional 30 year mortgage, you are building equity, too.

Another alternative, of course, would be a 30 year mortgage that did not apply most of the early payments to interest, but apportioned PIT evenly over the life of the loan. Not gonna happen any time soon without govt intervention and govt will not be intervening any time soon.

So, I guess the drill is to be grateful for this deceptively-named form of loan?

Meanwhile, banks have been borrowing from the Fed for an interest rate of next to nothing without a mortgage or paying extra points up front to lower the interest rate. I'd like that deal.

BTW, I take issue with some of the facts in the underlying article. For example, underwriting standards have not been getting looser for 50 years. That did not happen until after repeal of Glass Steagall.

[jtuck004]

6. "the drill is to be grateful for this deceptively-named form" < Deserves repeating n/t

[dixiegrrrrl]

8. One trick to faster mortgage payoff

is being able to get a "no escrow, no pre-payment penalty "loan.
Then pay extra principal payments every month for the first 5-7 years.
even 50.00 a month makes a huge difference.

Problem is, in order to get that, you have to pay 20% of a home price up front,
and be able to make your own annual insurance and taxes payments.
Most lenders want escrow as part of the loan, cause they make money from it.

[hobbit709]

4. A 15 year mortgage even with no interest would still put the average home in Austin out of reach

for about 75% of the population here.
Even rents are out of reach for most people. $1000+ for an efficiency in a not that desirable neighborhood is the average here now.

[merrily]

7. And to get the low interest, you have to pay more points up front,

in addition to your down payment.

I mean, it's nice that various forms of mortgages are offered, so borrowers can choose the one that works best for them. However, touting this as a wealth builder for the home owner is untruthful marketing.

[newfie11]

5. We have bought 3 homes on 15 year mortgages

But we have bought and sold 8 homes total.
We moved from 3 in VA, NC, Northern MI, 2 in SD, NE.

Because of different values in different states we built up equity quickly.
Homes in N. VA are much more expensive than ones in NC etc.

Selling Our farm in western NE was the last sale and farm ground had skyrocked since we bought it 9 yrs ago.

This small acreage/home we have now in the Black Hills is mortgage free.

We didn't start out to do things this way but life had other ideas.

[eilen]

9. We refinanced to a 15 year fixed loan 5 years after we bought our current home on a 30 yr FHA.

The interest had gone much lower so it made sense. Our home was not uber expensive. We live in a rust belt suburb with higher property taxes so home prices do not/did not ever explode upwards like in other areas. The financial crash in 2008 did not result in huge numbers of foreclosures in our region.

[link:http://www.newyorkfed.org/research/current_issues/ci16-3.pdf|