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Time for the 100 Year Mortgage?

Published by Joseph Ferrara October 13th, 2008 in 100 Year Mortgage and Mortgages.

I suggested the 100 year mortgage last year. Has the time finally arrived?

100-year-mortgage.gif

The 100 year mortgage is a modest proposal to help folks keep their homes out of foreclosure and spur home buying, with no adverse effect. It is based on the dual premise that people will buy (1) if they can afford to make the monthly payments or (2) if the cost to rent is comparable. The 100 year mortgage will provide BOTH incentives. In addition, if lenders converted existing loans to 100, 75 or 50 year terms, folks could manage the payments and keep the home out of nasty foreclosure.

It is a melancholy object to those who walk through this great town or travel in the country, when they see the streets, the roads, crowded with sellers, followed by three, four or six children, all in rags importuning every buyer for an alms with “for sale” signs. (adapted from “A Modest Proposal” by Jonathan Swift, 1729)

Objections center around the fact that the owner will build very little equity and the debt is passed to future generations. This is mostly true, but there are offsetting advantages.

  • Firstly, it provides a greater prospect for home ownership. If a person will rent an apartment which builds no equity, why not live in a home with the same consequence, if the payments are the same—-you’ll probably get more square footage (and can paint your walls purple).
  • Secondly, building home equity is still in the cards because home appreciation is still possible—–it is never possible for a rental.
  • Thirdly, for the substantial number of homeowners who move after 5 to 7 years, the equity effect is virtually the same. (NAR says the average is every 7 years)
  • Fourthly, the tax advantages of home ownership still abide
  • Fifthly, you can still refinance at any time
  • Sixthly, the reality is most people pay a monthly housing cost for most of their life
  • Seventhly, real estate transactions are likely to increase.

The bank that offers this product will own the historical claim of being the FIRST (in this country) and get plenty of free advertising—-extensive news coverage and blogorrhea out the wazoo. Even a spot in Wikipedia. You can’t buy that kind of publicity.

An example of the savings— compared to the 30 year 7% mortgage, the 100 year mortgage will save the buyer approximately $81.50 per $100,000 borrowed. On a $625,000 home with 80% financing, that’s a savings of over $400 per month.

What think thee?

Never-ending mortgage launched (aboutproperty.co.uk): Inter-generational mortgages in the UK by Kent Reliance. Apparently, Switzerland, Japan and Ireland have similar mortgage products.
Til Death Do Us Part (Mayfair Consulting)

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  • This is a fantabulous idea. 40 year mortgages are already on the street and most 20 somethings or 30 somethings will be in assisted living or close by the time 40 years rolls around. Your reasoning is sound. Besides, aren't the Japanese already doing this?
  • Charles Kraus
    Why not! It is better to have people in home ownership then in renting and certainly infinitely better then being in or facing foreclosure. The cost of real estate has outstripped the earning qualifications for many people and is what led to the sub-prime debacle we're in right now. Better to have a system were everything is above board and the investment transparent. The goal is to have people living in homes that they have a veated ownership interest in and not in Potter's Field.
  • Absolutely. If folks can keep their homes, it's a win-win for everyone.
    Foreclosures negatively impact the surrounding real estate.
  • Ah yes Joe, but!

    There are pleasures of owning a fully paid for home. I'll let you know what they are in a few years. :>)
  • Indeed. 'Tis a pleasure fewer of us get to experience.
  • You mean I can buy a home and probably be dead before I pay it all back? SWEET!
  • The best part is you get to buy a house. Besides, when you're dead it won't
    matter much :)
  • Which presidential candidate do you think will pick up on this? It could possibly help McCain because I don't think people are buying into his $300 Billion dollar bad mortgage buyback idea.
  • I know a lot of good hard-working people who simply took on too much monthly payment over the past few years and aren't spending a dime anywhere else in the economy. Giving all those upside down folks the opportunity to find some disposable income by refnancing into a more manageable situation seems like a solid play.
  • Interesting idea. Mortgages are confusing and it's good to know there are places to look for help.
  • Mr bernanke
    We already have 100 year mortgages.... it is called renting
    How about a 300 year mortgage the first 100 years payment optional???
    Great idea!!!
  • Renters have those pesky landlords and lease renewals. Maybe I'd like to
    sit back for 100 years in my house with a renter's monthly nut. I could
    maybe afford to add an addition, upgrade and increase the home value-- then
    I'd really have a sweet deal.
    Thanks Mr. Bernanke for stopping by :)
  • dan
    Sounds like a great idea for people who hate their own grandchildren before they have even been born. For the rest of us, a lease that you can end in your own lifetime sounds much better.
  • Tim
    Why bother if you will never see the benefit of living rent/mortgage free? Stupid idea.
  • Maybe there is a benefit of owning a home at renter's prices. Shouldn't folks have the choice?
  • Tim
    You don't own it though... you die before you own. Therefore, there is no benefit. The best solution is just to let the housing bubble deflate all the way, and then anyone who can save a deposit and demonstrate their ability to pay off a house can do so at a price close to renting; i.e. ACTUALLY owning at renter's prices.
  • yoski
    Great idea! Of course no money down and have the first 30 years with negative amortization added to the end of the loan. Or how about no payments for the first 10 years, that would work for me.
  • Carl
    A really WONDERFUL idea to prop up the housing prices instead of keeping them low. Great for raking in high property taxes; using residential real estate as speculative instruments instead of simple places to live - and fabulous for keeping a huge industry of real estate professionals at work in another Ponzi scheme until the next bust. I mean, who cares about future generations? Get rich now!!!!!
  • Well, consider if the parents refinanced their home before they died to live a little in the waning years of their lives-- it may not be fair to future generations (which didn't buy the home) -- but I'd say the owners had the right to take "their" equity and blow it on Vegas shows and safaris. Just my opinion.
  • Looks like stupid idea has the lead in votes here. Anyone know how it works out in other countries that have it?
  • Jeong
    Beyond stupid. I suggest you research Japan's economy in the late 90's.
  • Was it caused by 100 year mortgages? The bastards!
  • Jeong
    PONZI. SCAM. BULLSHIT.

    I suggest that the new word of deceptive practices should be: real estate agent, mortgage broker, or home builder.

    For example:

    "Hey man, don't get all real estate on me, just tell me the truth."
  • I like that Jeong. How about "Don't go broker on me"
  • Andrew
    I think the real estate industry is more interested in this garbage than financial lenders would be - which means only those who try to be both banks and brokers will even attempt it. Consider that the lender has their money tied up for a century, in which time they might well expect something far more lucrative to come along. Add to this the fact that 100 years of interest comes to a staggering amount of money which, if it fails to eventuate, is a very risk to have on the books. This adds up a scheme which only someone who was delusion enough to think they could sell the loan on, thus divesting themselves of the risk, would actually take on. Now how good do you think the market in dubious mortgages is at the moment?
  • Victor
    Is the idea to make everybody slaves for life?. 100 years mortgage will probably affect the current correction and help to keep prices higher for everybody. Initially, yers, lower payments, but in the long run, houses would artificially appriciate to a value where the montly payment will be higher than initially. In the long run, nobody wins, poor or middle class will never be able to buy and payoff a house. Stupid and dangerous idea. Botom line, houses should always be affordable for the majority. Just wait and it will hapen.
  • Nathan Janus
    Why not just let house prices fall to where they should be? It would solve a lot of problems
  • Paul
    This is similar to a perpetual interest only mortgage.
    Eventually inflations makes the $500,000 you owe on the loan small change
  • If monthly payments on 100 yr mortgages were comparable to rental prices,
    this type of "ownership" might be attractive to renters, since there remains
    the possibility of building equity. As a renter, you can NEVER build
    equity. Just a thought.
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