[John Philip Mason is a residential appraiser with 20 years experience and covers the Hudson Valley region of New York. He’s a good friend and a true professional who provides unique insight to appraisal-related issues of the day. This week, he addresses the 50-year mortgage in his Solid Masonry post.] Jonathan Miller

There has been quite a bit of talk lately about the arrival of the 50 year mortgage but much of it has been quite superficial. Then along comes a recent post on MortgageNewsDaily.com, entitled The 50 Year Mortgage Is Introduced In California. The article provides an in depth look at the real nuts and bolts facing purchasers looking to stretch their dollars in an attempt to snag a piece of the real estate pie. Naturally this baby was born in California, home to some of the highest priced real estate markets of the nation.

Now before you tell yourself this seems like an idea with nowhere to go, consider that the article states “last year Fannie Mae announced a pilot program to test-market a 40 year product throughout the country. Today approximately 5 percent of new mortgages in the country are written for a 40 year term.” And “According to Bankrate.com about 25 percent of new mortgages in California are 40 year loans so the 50 year home loan ‘is the next step.’ One banker says he has taken over 200 applications already for the new product.” Let me also add that California was the birthplace of the Pet Rock, and while that may seem like a put-down, millions were sold in just a few months, at $3.95 each.

The writer compares (with minimal assumptions) 15, 30, 40, and 50 year mortgages and provides us with the various monthly mortgage payments, balances due five years into the loans, and total interest paid over the life of the loans. In short, the risks and total dollar payments are far greater than shorter term loans. This analysis might leave many of us, (okay, many of us older folks) wondering why those who seem least able to afford such risks are willing to take them. But for some the desire to own a home may be too powerful a force to deny and the temptation, at any price, to great to resist. While some could downsize their idea of “home sweet home”, the fact is there are fewer housing options for those at the bottom of the housing markets.

However, should the real estate market turn sour it seems likely the most leveraged loans could set off an avalanche taking all of us with it. Those of us who plopped down significant down payments could sustain the greatest losses in terms of “real” equity. While this would be humbling for many, it could also be financially disastrous for some. This would be especially true for anyone counting on the equity in their home to finance the college education of a loved one or their own retirement. You know those tens of millions of us without significant savings, a diverse portfolio and a lifetime of employment for a never downsizing employer with a well balanced pension fund.

So while you may feel sorry for those with limited options, keep in mind that if this market goes down too far, many more of us may be working a few more years before retiring and some others may be saying, “just 599 more payments and it’s all mine.”

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