50-year mortgages may not be golden

“It feels like a solution in search of a problem,” says Pete Bonnikson, vice president of mortgage operations for E-LOAN, describing the latest product to hit the home mortgage market: The 50-year mortgage.

Reportedly the problem this hyperextended loan addresses is affordability for homebuyers in high-cost areas. By stretching the repayment calculation over 50 years, so the argument goes, monthly payments fall by enough that borrowers unable to qualify for any of the other dozens of mortgage options can get a loan.

For certified financial planners like Nancy Flint-Budde in Salem, N.Y., it is a tossup as to whether helping people get around a standard option meant to keep them from overextending themselves is a good thing. “If they can not qualify for a standard or interest-only mortgage, this seems like a dangerous strategy,” she says.

“Nationally, we are seeing almost no activity in this product,” says Douglas Duncan, chief economist for the Mortgage Bankers Association in Washington, D.C. “Statistically it does not even register in our volume numbers. Most areas have not had the dramatic run-up in home prices necessary for this to be an answer to an affordability issue.”

So far the only area harboring any interest and some activity in 50-year mortgages is California, its birthplace.

“In California, buyers [many of them middle-income] cannot qualify for traditional 30-year mortgages because their debt-to-income ratio ends up being too high. This may be the only way they can get into a home,” explains John Marcell, president of the California Association of Mortgage Brokers and a mortgage broker in Upland, Calif.

Even in California there is little more than curiosity being expressed, according to Debbie Hoover, a mortgage loan agent with Legend Mortgage in West Hollywood, Calif. “The people who are purchasing now seem comfortable with the 30-year.”  On the refinancing front, she adds: “We have yet to see the market turn down to the extent people are in situations where their payment is hurting them. Nearly everyone locked in three years ago at lower rates.”

In fact, says Dena Bricker, a mortgage broker with American California Financial in Torrance, Calif., “right now the pricing on the product is silly.” The fixed-rate version is priced at such a premium to 30-year mortgages, it is not competitive to other alternatives. The adjustable version is only slightly better. This version, also priced at a premium, fixes the rate for between five, ten or 15 years and then becomes an adjustable-rate mortgage up until year 30. At that point a balloon payment for the remaining balance is due.

“That last 20 years is an illusion,” says Marcell.  “It is basically a 30-year loan amortized over fifty years.”

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