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Table 4 provides results for these two sub-samples. ... dependent borrowers. ...
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Longer mortgages leave borrowers chipping away for 50 years
Those struggling to afford a home may be wondering how long their mortgage payments can be stretched out.
The answer: half a century.
A few lenders have begun offering 50-year adjustable-rate loans to buyers who need to keep payments low in the face of record home prices and rising mortgage rates.
Most big banks offer 40-year mortgages, which account for about 5 percent of home loans, according to LoanPerformance, a real-estate data firm. So far, only a few small lenders have rolled out the five-decades-long mortgages.
One of them is First Franklin, a division of National City Bank of Indiana, which offers 50-year mortgages to Washington state borrowers through its Bellevue office. Although information is available on the company's Web site, www.ff.com, bank officials wouldn't comment.
For cash-squeezed buyers, the longer-term loans are a new option.
In California, where the loans were introduced, only 14 percent of people could afford a median-priced home in December, when the median was $548,430, if they had to put down 20 percent, the California Association of Realtors found.
"One of the biggest things in California is the high costs of homes," said Alex Diaz Jr. of Statewide Bancorp in Rancho Cucamonga, Calif. "And with rates going up, there's demand from customers [for] longer loans."
Statewide introduced its 50-year loan in March and has received about 220 applications, Diaz said.
The 50-year mortgage also signals that the cooling real-estate market is heating up competition among lenders.
"Mortgage lenders are getting craftier to get the attention of consumers," said Anthony Hsieh, CEO of LendingTree. "[But] the consumer needs to slow down and understand the product."
Two issues to keep in mind: A borrower with a 50-year mortgage builds equity very slowly. And because rates on the loans are adjustable, monthly payments are likely, especially in this environment, to go up.
Statewide's 50-year loan is a 5/1 hybrid, meaning that the introductory rate lasts five years and then is adjusted annually, moving up and down with the London Interbank Offered Rate, or LIBOR.
Most borrowers who consider 50-year loans are well-suited for lower-rate hybrid adjustable mortgages, said Jim Sahnger, mortgage consultant for Palm Beach Financial Network in Sewall's Point, Fla.
Bystanders are dubious of the half-century loan's benefits.
"If you run the amortization out, it basically is an interest-only loan, in all practical terms," said Jason Flurry, a certified financial planner and president of Legacy Partners Financial Group in Woodstock, Ga. "If a person is considering something like that, they're probably trying to squeeze into too much house to begin with."
While a 50-year mortgage is an alternative to an interest-only loan, it's not necessarily the best one. A 50-year loan has lower monthly payments, but the total cost is astronomically higher than that of a 30-year mortgage because you're stretching out the payments for two decades longer.
The 50-year loan isn't considered as risky as an interest-only loan or a mortgage that lets borrowers pay less than the interest. With those loans, a borrower might not build any equity and could end up owing more than a home is worth — called negative amortization.
That's why Anthony Sanchez applied for the 50-year loan to refinance his California home.
"I looked at a lot of different options," said Sanchez, 30. "I didn't want to be tempted with negative amortization."
Regulators and consumers worry that foreclosures will surge in coming years, especially among homeowners who got interest-only and payment-option ARMs. The 50-year loan is a lifeline for them, Diaz said.
"Payment-option ARMs and [interest-only loans] have been so popular, we wanted to come out with a longer-term, fully amortizing loan for people who don't want [negative-amortization loans]," Diaz said.
Mortgage experts say the 50-year mortgage is best-suited for those who plan to stay in their home about five years.
"If you're going to be there more than five years, you're gambling," said Marc Savitt of the National Association of Mortgage Brokers. "You don't know what interest rates are going to be. I wouldn't do it."
